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Daily Newsletter, Sunday, 03/05/2000

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The Option Investor Newsletter Sunday 3-5-2000 1 of 5
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.
Posted online for subscribers at http://www.OptionInvestor.com
Entire newsletter best viewed in COURIER 10 font for alignment
******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
WE 3-3 WE 2-25 WE 2-18 WE 2-11
DOW 10367.20 +505.08 9862.12 -357.40 10219.52 -205.29 -538.59
Nasdaq 4914.79 +324.29 4590.50 +178.76 4411.74 + 16.29 +151.31
S&P-100 765.95 + 46.17 719.78 - 8.74 728.52 - 23.52 - 23.47
S&P-500 1409.17 + 75.81 1333.36 - 12.73 1346.09 - 41.03 - 37.25
RUT 597.88 + 41.14 556.74 + 11.06 545.68 + 8.58 + 11.58
TRAN 2434.45 + 83.19 2351.26 - 79.54 2430.80 - 5.33 -172.83
VIX 21.29 - 7.79 29.08 + 0.63 28.45 + 1.53 + 3.99
Put/Call .40 .41 .63 .59
******************************************************************
Rational exuberance breaks black Friday curse.
Fewer jobs, higher unemployment equals massive market rally. I know
it sounds like a contradiction of terms but what is good for American
workers is not always good for the markets. The February Employment
report reported gains of only +43,000 new jobs compared with the
official estimates four times higher. The unemployment rate rose
to 4.1% when official estimates were a drop to 3.9%. What happened?
You heard it here first. As I said on Thursday we felt the January
report, which was much higher than expected, was exaggerated by
weather related factors. We felt this report would come in less
than expected as those factors worked their way out of the system.
The herd on the street saw the surface numbers and thought it was
the mother of all buy signals. The markets gapped open and the
Dow ran nonstop to 10,443 before realization started to sink in.
The NASDAQ surged farther into record territory closing at the
high of the day and the first close over 4900. The Dow gained
+504 points for the week and the NASDAQ gained +324. If you
measure from the NASDAQ's intraday low on Monday of 4466 then
the NASDAQ scored a +448 point gain.
The NASDAQ has been on a run since bouncing off 4300 twice in
February. So much of a run it has now tacked on +600 points since
the last major period of weakness. It did have two days of simple
profit taking and buyers bought the dip with a vengeance. At this
point we have a really good chance of some serious profit taking
at any time. The odds are greater due to the 5000 milestone.
Indexes tend to falter at significant milestones after major
rallies. N5K could prove to be a short term ceiling if we fail
to break above it and hold on the first attempt. Since N5K was
the end of 2000 target for dozens of market pundits, and it appears
that we could hit it this week, then where are we going from here?
We are sure there are as many ideas as we have readers so we are
going to play a Nasdaq-5000 game. The prize is $500 and it is
open to all current readers of OIN. The concept is simple.
Click on the link below and tell us when the NASDAQ will first
hit 5000 and when it will first close above 5000. All entries
must be submitted prior to 9:AM EST on Monday.
http://www.OptionInvestor.com/contests/n5k.asp
The NASDAQ soared to the third biggest point gain ever on the
third largest volume ever of 2.1 bln shares. Records are becoming
so common that writers are running out of adjectives to describe
the market. The NASDAQ has had only 14 days of triple digit gains
ever and 11 of them have been this year.
Top ten NASDAQ days
02/23/00 168.21
01/10/00 167.05
03/03/00 160.28
01/07/00 155.49
02/03/00 137.02
12/21/99 127.28
02/10/00 122.39
02/17/00 121.27
02/29/00 118.72
02/01/00 111.63
Also amazing is the volume. At 2.1 bln shares today only
qualified as the third largest. Powering the huge gains this
week were the semiconductor and biotech stocks. The SOX is
now up +70% YTD but even that gain is overshadowed by the
biotech index (BTK) with a +90% YTD gain. Even with the
brighter outlook across the board these types of gains cannot
go on forever. Trees do not grow to the sky. Technicians are
becoming concerned that this euphoria is really turning into
the speculative bubble that ends badly.
With the NASDAQ extending its gains daily into nosebleed territory
it might be wise to remember that the Dow is still in correction
territory. Even with the +500 points gained last week the Dow is
still down over -12% since the January high and still -3% under
November-1999 levels. To put things into perspective the +202
point gain on Friday was in sharp contrast to the -1200 points
lossed in the previous five Fridays. Yes, the Dow has gained back
+500 points of the -1700 points lost since Jan-14th but in two of
the bear trap rallies we gained over 300 points only to lose them
again. Follow through is the key here. If the Dow can hold its own
next week we have a chance. It really does not have to gain much
to have a positive impact, just stay above 11200 and preferably
above 11300. There is significant overhead resistance at almost
every century mark and it will take a complete revival of interest
in old economy stocks to power this index upward. Several of the
laggards experienced a brief rebound on Friday but in reality
their individual outlook is still bleak. MMM posted a $10 gain
at the open on Friday but slipped back to close at $89.50 and
only a $3.44 gain. MMM traded as high as $103 in January. IP
gapped up +$4 at the open for a +10% gain but slipped back to
only +1.19 for the day at $36.31. IP traded at $60 in January.
AA jumped +3.50 at the open but dropped back to +1.13 for the
day at $67.94. IP traded at $82 in January. Dupont managed to
hold most of its +5.00 opening gains with $3.88 at the close
but DD was significantly under the $74 it managed in January.
The big Dow winner for Friday was ironically DOW Chemical. For
some reason investors ran back to DOW and pushed it up +$14
from its 99.00 close on Thursday. Slippage did occur but DOW
was able to hang on to +10.25 of its gains. Still closing at
$109 was far shy of its January high of $142.
My point here is why? Four of the Dow's most unloved companies
sprinted on the rate relief rally at the open but were unable
to hold onto much of their gains. Had they closed at the highs
on increasing investor optimism then I would view the bounce
in a more positive light. Instead I view it as a relief rally
based on the news event. Nothing changed in the minds of most
investors. These stocks are proud of managing single digit
growth per year when tech stocks are powering ahead to 50%,
75% and 100% gains per quarter. These old economy stocks
cannot even be considered "safe" investments in today's
market. Why buy? I can't imagine why given the Fed is still
in rate increase mode. We still have at least two rate increases
in our future. The only thing changed is the possibility in
some analysts minds that Greenspan would raise +.50% instead
of +.25% in March. Since they were wrong anyway what difference
did it make. Drug stocks, long held to be safe havens, just
keep dropping. How much farther can the Dow rally when the
bloom is gone from the Friday favorites if MRK, JNJ, PG
all have charts with no bottom in sight? Another reason these
stocks are not likely to rebound far is simply dictated by
cash flow. Growth funds have received +$47.7 bln in cash
in Jan/Feb while value funds have lost -$26.5 bln in the
same period. Several value funds have complained that they
would like to buy these beat down stocks at these levels
but they simply couldn't do to a lack of cash. They are
being faced with more redemption's than investments on a
daily basis and they do not see any light at the end of
the tunnel.
Before you accuse me of getting my bear suit out of the closet
I think I should temper my comments. The Dow had its best week
since July-1999. We should celebrate! Then we should quickly
turn our attention back to the NASDAQ because focusing on the
Dow next week could be disappointing. The real excitement is
strictly NASDAQ. What, the Russell-2000 is setting records
also? Don't believe everything you see. The Russell-2000
could be renamed the Russell-13 since the recent major moves
into record territory have been on the back of only 13 Russell
"large caps."
We should be celebrating the rebound of the market but we
should always keep our eyes on the pillars of the markets
as well. Take away the semiconductors and biotechs last week
and the outcome would have been much different. How much
longer do you think those leaders can continue to post gains
of $30-$40-$50 per week without some profit taking? Just
look at the weekly results for the OIN plays last week.
The stocks of 17 of the 25 call plays had double digit
gains. Profit taking anyone?
Bond, what bond? When is the last time you heard about bond
yields being a factor in the stock market? The 30-yr bond
closed on Friday at 6.13% yields and have been trading in a
tight range all week. This may change on Monday. Just when
you thought it was safe to go back into the market Federal
Reserve Governor Laurence Meyer launched a warning that the
Fed may have to be "aggressively reactive" in the near future
to halt the increase in consumer spending and allow the
supply/demand equation to ease. Saying that economic numbers
to come, even if benign, would not be enough to cause the
Fed to stand down from the current rate increase policy and
the Fed may have to react even more aggressively. The hawkish
speech on Friday night held no hope for investors that the
Fed would ease its stance anytime soon.
Before I give you whiplash with my change of direction I want
to point you to the broader market indexes of the OEX and SPX.
Both of these broader market indexes have posted strong rallies
even when the Dow was marking time tue/wed/thr of last week. This
is very encouraging and could point to a healing process on a
broader level. Both these indexes just barely closed over their
respective inflection points and we are only a couple S&P future
points away from slipping back into a technical negative. The OEX
needs to confirm the move with a close over 785 and the SPX with
a close around 1450. If either starts falling again the recent
pattern of lower highs will be confirmed and the whole downward
trend could start all over again.
Last but not least is our friend (or enemy) the VIX. While the
VIX does not always signal buys or sells exactly the indicator
does forecast direction changes very routinely within a day or
so.
Look at the chart of the VIX above. On Jan-14th, the Dow top in
January of 11749, the VIX was 20.90, the exact sell indicator we
have today. On February 8th the VIX hit 22 and the Dow sold off
-650 points in the next five days. Don't look now boys and girls
but the euphoria is rampant and the VIX is flashing red. The
companion indicator, the Put/Call ratio is .40 which is also
on the low end of the spectrum. Under 50 is bearish, over 50
bullish. Remember that most down trends are triggered by the
market reaching a new high after a strong run. Sounds like the
NASDAQ to me. I am not saying the market is going to crash
but I do think there will be some profit taking very soon. My
current thought process, assuming we open up on Monday, would
be a run to 5000 and then a drop on profit taking and a possible
consolidation period before the run into April earnings. As
much as I don't want to admit it, we still have room for another
correction in the NASDAQ before the April earnings run.
Trade smart, sell too soon.
Jim Brown
Editor
Disclosure: My current positions include:
NXTV, ARBA, OEX, QQQ,
Editors note: Due to the volume of email I receive it is
impossible for me to respond to even 20%. I usually get well
over 1000 unsolicited emails per day. I can't even read them all,
much less respond to them. Please don't take offense if I do not
answer your email. I do try to set aside several hours a week to
read subscriber email but I can normally only get through several
hundred at best.
If you have questions about OIN please direct them to
Contact Support and a real person will respond.
We cannot give specific answers to specific trading requests.
We cannot tell you if you should hold your Dell stock or how
to handle trades gone bad. We do love to get your email about
your winning trades also. We pass them around like a pat on
the back for a job well done.
Within the next two weeks we should have our newest website
revision up and it contains a huge website guide and frequently
asked questions page. Please check these out before sending
your emails.
Thank you for your cooperation.
Jim
***********
JIM'S PLAYS
***********
What a week! With the Nasdaq running rampant almost all of my
naked puts were deep out of the money and highly profitable.
When the Dow started fading at midday on Friday and the VIX
dropping like a rock I closed everything and regrouped. With
only two weeks to go before expiration the remaining premiums
are slippinf fast. If we do get a pullback next week I plan
on using the inflated premiums from the drop to sell more
puts wherever stocks have dropped to support and rebound.
When the VIX hit 21 on Friday afternoon I bought OEX and
QQQ puts again just in case the market dies on Monday. I
may have jumped the gun with the N5K euphoria so strong.
The Nasdaq could sprint to 5000 on Monday morning and then
fall back. I will be watching closely at the open.
I only have two other plays open and both were started
on Friday.
NXTV $142.50 Short $140 calls
With the announcement that Qwest might be taking a minority
position in NextLevel the stock ran up $35. A totally
unsupported level. The keywords here are "rumor" and
"minority" stake. I sold the $140 puts when the price was
only $130 thinking the news would come out and push the
price over $140. When the price rocketed to $155 and then
the follow on news was negative, IE; no news, I decided to
turn it into a straddle and sold the $140 calls as well.
When it started back down I decided to short it early at
$145 and try to capture a couple more dollars. That is when
disaster struck. No shares available to short! OOPS! I
quickly covered the puts for anout a $12k loss (75 contracts).
I still think the news will dry up and the calls will expire.
Any market wekaness will only help. Time will tell.
ARBA $330 Short March $330 calls
ARBA announced a split and an analyst upgraded the price target
to $350 on Friday. The excitement added $30 to the price. After
soaring +1000% since their IPO last year and adding +$70 since
Monday I took a chance and wrote calls on ARBA friday afternoon.
The price started dropping around 2:PM and the candles on the
5 min chart were showing more red than green and getting longer.
If the Nasdaq races off to 5000 on Monday morning I may get
stopped out but ANY Nasdaq weakness should knock $10-20 off
the stock price. (IMO)
OEX - $770 puts
QQQ $220 puts
These two plays were strictly based on the big gains made by the
Dow and Nasdaq last week and the extremely low VIX at 20.90. If
ever there was going to be a pullback the VIX at 20.90 is screaming
sell. Ironic that whenever all things look too good to be true they
usually are......we will see if the VIX is lying or not on Monday.
Nothing precludes it from dropping even farther if the Nasdaq
bounds out of the gate on Monday. That will only make these positions
uncomfortable but I will wait till I see what happens during the
day and then add to them.
**********
The game plan for this week is "wait on the market". You do not
have to be in the market at all times and even if you can't sit
out then only invest a small percentage. I think the next run
to earnings will be the big one and I hope the markets drop
like a rock on Mon/Tue to give us some good entry points for
that run. Don't buy the first dip. Be patient.
Trade smart, wait for the bounce and sell too soon.
Jim
******************************
OptionInvestor/Optionetics
Spring Advanced Seminar Series
******************************
The spring dates for the OptionInvestor/Optionetics seminar
series are approaching fast. This is the advanced seminar
taught by George Fontanills and Tom Gentile. If you feel
you need more option strategies in your trading arsenal
like the Delta Neutral Straddles George is famous for then
this seminar is for you. Remember, you can bring a friend
for free and retake this seminar as many times as you want for
free. The cost of the two day seminar is about what you would
lose in only one trade. Invest it, don't lose it.
Here are the spring dates:
Mar 19/20 Chicago
Mar 26/27 Dallas
Apr 2/3 San Francisco
For complete details http://www.OptionInvestor.com/seminar/
There is a 100% money back guarantee and you can take a friend
for free. What else could you ask for?
************
Stock News
************
Acxiom Corp: Better Marketing via Technology
Knowing your customers is the probably the single most
important element to running a successful business. With the
evolution of the Internet, information, in many respects, is
easier to obtain than ever before. But sifting through that
information can be tedious and time-consuming. Companies that
know the most about their clients, and can act quickly enough,
will have the best chances for success.
Acxiom Corporation (ACXM), based in Little Rock, Arkansas, is
a global leader in this area. They provide comprehensive
information management solutions using customer, consumer
and business data. The company's databases provide information
on 95 percent of US households. Besides its core data delivery
business, which makes up 55 percent of sales, Acxiom also offers
data processing and outsourcing services.
Clients such as Allstate, Wal-Mart, Netscape, Procter & Gamble,
and AT&T use Acxiom's information to pinpoint customers that
might want their products and services.
The company has been on an acquisition binge of late, buying
data marketing and delivery companies to protect market share,
and extend the breadth of its Acxiom Data Network, a new Web-
based data delivery system.
Consider the power that business gains when it can quickly and
accurately see a big picture of their customers and markets to
discern buying patters, product and market overlap, and new
opportunities for cross-selling and upselling. Acxiom's
products and services allow business enterprises to more
effectively manage inventory, transportation, and
communications, all which can further a company's competitive
advantage.
Say, for example, that you are a large insurance company, and
that you want to launch a large mail/email campaign to existing
and prospective clients, but you want to send only to those
prospects that can afford the service and that have excellent
credit ratings. Acxiom's technology products can quickly scour
your company's database of customers, as well as its databases,
to compile a customized "perfect" audience that result in the
most responses and, thus, more sales.
One of Acxiom's products, AbiliTec, has helped Acxiom bag
several new clients. Abilitec is a customer integration
product that links to Axciom's comprehensive knowledge base
(Acxiom Data Network) of consumer and business name and
addresses. AbiliTec facilitates customer relationship
management by enabling companies to achieve a single view of
a customer across multiple business lines and databases.
AbiliTec can handle easily large-scale database environments,
and can accommodate real-time transactional needs.
Acxiom's customers span many industries, including automotive,
credit card, healthcare, insurance, media, real estate, retail,
banking, technology and telecommunications.
Most companies in the business of providing online customer
solutions are bleeding red ink. Acxiom's financials and
fundamentals, on the other hand, look strong. For the nine
months ended December 31, 1999, revenues rose 30 percent to
$702.6 million. Net income totaled $63.5 million versus a
loss of $34.8 million. Revenues increased in all segments of
its business.
As far as Wall Street is concern, Zack's Investment Research's
survey of 13 analysts are estimating ACXM will earn 29 in the
fourth quarter, ending March 31, 2000, up from 23 cents in the
prior year period. Fiscal 2000 earnings per share are expected
to be $1.00 per share, up from 84 cents last year. Fiscal 2001
estimates are for earnings per share of $1.17, which would
render a price to earnings ratio (P/E) of just 26, based on
ACXM's current share price of $31.
From a technical perspective, ACXM stock looks poised to move
higher, finishing the day at a new 52-week, and all-time high,
closing at $31.58 per share. If you believe legendary investor
Peter Lynch's theory that, "stocks that hit new highs tend to
move higher," this is a good sign. Always be sure to do your
own due diligence.
*******
Ask OIN
*******
Ask the Analyst, Sunday, 03/05/00
Last Week's Question Was Answered With An Astounding, Yes.
By Ryan Nelson
After watching an indicator work so successfully for so long,
you can really start to trust the outcome. It proved itself
again last week by signaling yet another top in the market.
Of course, the indicator I am referring to is the VIX. It was
rising all last week during the market turmoil before topping
out in the low 30s. Sure enough, it signaled the top and begin
to retreat. This helped most major indices to mammoth moves
and lots of profit. So where is the VIX now? Back down to
20.90, almost ensuring there will be some profit-taking next
week. It is never for certain as the VIX could continue to
hover in the upper or lower range, but the more it extends out
of the typical range, the more likely you are to see a sharp
reversal.
Enough with the VIX though. Despite being a beautiful Denver
morning, I am ready to settle in at the computer and look at
some charts. We had lots of requests this week so let's see
how many we can answer.
----------------------------
Intermedia Communications - ICIX
Could you please explain why icix is valued far below its
intrinsic value. Since it owns 80% of digx, now trading at
$137, I am at a loss trying to figure out why it is only
trading at $55.
-thank you, Jeffrey
I know how you feel. We played ICIX as an earnings run for
their most recent quarter and I was scratching my head over
the fact that it didn't respond to the incredible book value
it is gaining from DIGX. Not to mention ICIX isn't struggling
with their business either. You would think this was a shoe-in
play, but there are still a few factors that worry me.
Namely, the short position increases every month. It is now
up to 60% of the float. That is huge. You usually don't see
that kind of massive shorting unless something is wrong. That
alone would keep me from playing it. Especially since the
stock won't respond to the incredible gains from DIGX. The
chart doesn't show us anything bad, but I just can't bring
myself to play a stock with such a high short position. I
have seen too many fortunes lost when bad news hits the wire.
Besides, in this market you do not need to settle for plays
that have a dark cloud hanging over it, despite the potential.
----------------------------
Sonic Foundry Inc - SFO
What are your comments on Sonic Foundry (SFO) AMEX and it's
recent runup?
-Molly
Never heard of it until now, but the chart looks good. I
personally don't play stocks with such a low average daily
volume, in this case under 100K. It makes for some slow
trading, large spreads between the bid and ask, and even high
volatility in some cases. Fortunately, I don't see a lot of
wild swings in this chart, which may mean it is a more stable
stock.
SFO is a provider of software products and services that enable
its customers to create and edit digital audio and video content.
Again, they are a real small cap (but up and coming) company.
I like the recent breakout over the downtrend line. They had
a 2 to 3 day move and are now consolidating. They also recently
agreed to acquire another company, which may pressure the
stock somewhat. But with that said, if SFO can hold the 5 or
10-dma and begin to bounce higher on renewed volume (buying
interest), I think you may find another short-term play here.
The momentum has been there for SFO so far this year and until
it tells you otherwise, you go with the flow.
----------------------------
Chemdex - CMDX
I bought CMDX at $120 last week. Now it is $240 (5 days later!!).
What do you recommend?
-Richard
Well Richard, as the long time readers know, I don't recommend
anything, just talk about what I see. But I would be happy to
tell you what I would do with CMDX (now known as VNTR since
they changed their name and symbol last week). Sell it and
sell it fast, but that's just me.
I know you are supposed to let your winners run, but I can't
turn down a quick doubling of my money. I typically play
options and let's say I buy something at the close on a good
entry point. The stock has some good news the next morning
with either a positive product announcement or an upgrade and
I am looking at a double within the first few minutes, I can't
help but take the profit. In some cases the news is so good
that I will let it run, but I will take all the doubles I can
get in such a short period of time.
So it will come back to your goal for this investment. If it
is a long-term stock play, then hold it. But with the VIX low
and the market potentially in need of profit-taking, you may
be able to buy it back under $200. I like this stock and the
outlook for their business, but I can't resist such a big
return in such a small amount of time.
As for the chart, VNTR has struggled the past few days. Only
up $1.69 on Friday when the market went on such a run. You
can also see the intraday top at $220 in the afternoon.
Whatever you decide, good luck and I hope you sell right at
the top to make all the money you can!
----------------------------
Good Luck to all and don't forget to send in the symbols for
any stock you want analyzed. Send those requests to
Contact Support. Please put the symbol in
the subject line of the e-mail.
----------------------------
DISCLAIMER:
This column is an information service only. The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind. The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options. It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security. The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.
**************
Market Posture
**************
As of Market Close - Friday, March 3, 2000
Key Benchmarks
Broad Market Bearish/Bullish Last Posture/Since Alert
****************************************************************
DOW Industrials 10,700 11,250 10,367 BEARISH 2.17
SPX S&P 500 1,400 1,450 1,409 Neutral 3.03 *
OEX S&P 100 740 780 766 Neutral 3.02
RUT Russell 2000 500 520 598 BULLISH 2.24
NDX NASD 100 3,800 4,000 4,443 BULLISH 2.24
MSH High Tech 1,850 2,000 2,148 BULLISH 2.24
XCI Hardware 1,300 1,460 1,588 BULLISH 2.24
CWX Software 1,200 1,470 1,578 BULLISH 2.24
SOX Semiconductor 800 900 1,211 BULLISH 2.24
NWX Networking 940 1,000 1,158 BULLISH 2.24
INX Internet 700 800 784 Neutral 1.06
BIX Banking 500 550 485 BEARISH 11.30
XBD Brokerage 400 450 488 BULLISH 2.31
IUX Insurance 500 550 470 BEARISH 11.30
RLX Retail 950 1,000 841 BEARISH 1.28
DRG Drug 340 380 315 BEARISH 2.18
HCX Healthcare 700 750 660 BEARISH 2.18
XAL Airline 120 140 121 Neutral 3.03 *
OIX Oil & Gas 280 315 256 BEARISH 1.27
***Posture Alert***
The employment figures sparked a huge rally on Wall Street, as
fears of inflation have subsided, at least for one day anyway.
Most industries participated in the big day, however, the Software
sector led the way with a +7.29% gain! Other notables include
Semiconductors (+6.64%), Internet (+6.46%), and Airlines (+4.76%).
With this most recent action, we have upped Airlines and the S&P
500 to Neutral from Bearish.
******************
Market Sentiment
******************
Sunday, March 5, 2000
Bill Gates and your $395 bucks!
The employment figures that came out Friday caused a broad-based
explosion with all sectors participating. The Dow has now made it 5
days (of gains) in a row, and the NASDAQ continues to do a good job
of outperforming all other indexes, as it closed at another record
high. Volume continues to surge on the NASDAQ, as 2-billion share
days are becoming ever more the "norm."
Below are the top record volume days, and as you can see, we are
shattering records every week!
Date: Volume:
03/01/00 2,232,343,100
03/03/00 2,151,119,000
03/02/00 2,137,050,406
02/29/00 2,088,835,400
02/17/00 2,008,438,100
01/24/00 1,980,702,700
02/08/00 1,971,175,500
02/24/00 1,944,047,900
01/21/00 1,916,620,600
02/18/00 1,898,407,400
02/23/00 1,892,802,200
So not only did the NASDAQ trade big volume, but it also closed up
another +160 points! If the old adage of: volume precedes price
follows here, NASDAQ 5500 is just around the corner!
Date: Change:
02/23/00 +168.21
03/03/00 +160.28
01/10/00 +167.05
01/07/00 +155.49
02/03/00 +137.02
12/21/99 +127.28
02/10/00 +122.39
02/17/00 +121.27
02/29/00 +118.84
02/01/00 +111.63
09/03/99 +108.87
Now with this continued surge in volume, we would not be surprised
to see the NASDAQ rip through the 5,000 mark in relatively easy
fashion. However, some things to take note for Monday/Tuesday
would be that this market appears to be in a near-term overbought
condition. The Volatility Index closed Friday at 21.29, which has
been a reliable indicator to lighten up on positions. Now don't
get us wrong, the VIX has been a teenager before, and it easily
could be again, but the statistics point that at this stage,
lightening up could be the best strategy. Now, in the past, we
have seen the VIX get caught in a narrow trading range. We
highlighted this fact below in the chart:
As you can see, the VIX traded in a relatively narrow range from
November to January (as highlighted by the arrows), in which it
never hit an oversold area (low 30's). Now during this time frame,
the NASDAQ gained +1,000 points, with the VIX never closing below
20. So at this stage (for the extremely short term), we would look
to lighten up positions, and then look for a re-entry point after
the VIX gets out of the overbought area.
Another gauge that we look readily look at for our trading is the
Pinnacle Index on the OEX. In last Sunday/Tuesday's letter, we
stated that based on the figures, we were due for a rally. Well,
we got the rally and then some! However, when looking at the
latest figures, the Pinnacle Index for the OEX (765-785) is
extremely heavy, which would indicate that a slight pullback would
be in order. With March expiration in less than 2 weeks, we view
this area of the OEX as being a hurdle, and most likely, we will
not surpass this area until after expiration. However, should the
bears start aggressively buying puts in this range on the OEX, our
figures will easily change. We will update you on any of those
changes, but as it currently stands, this index is due for a
breather.
As a side note, we found this analogy quite amusing:
Microsoft Stock Price (3/3/00): $96 1/8
Bill Gates's Wealth: $108 billion
U.S. Population: 274 million
Your Personal Contribution: $395
Bill thanks each and every one of us!
BULLISH Signs:
Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of
analyst expectations.
Cash Flow:
The cash that has been sitting on the sidelines has been put to use
as of late, as record volumes for the major indexes have been
shattered. With the NASDAQ surpassing volume of 2 billion shares
again, this money is obviously flowing into technology.
Short Interest:
Short interest continues to climb as quickly as the market. The
short interest on the NASDAQ increased another +8.51%, for a 5th
consecutive record.
Interest Rates (6.117):
The current yield is now safely off of 52-week highs and is
temporarily out of the danger zone.
Mixed Signs: None
BEARISH Signs:
Pre-Release Season:
With April just around the corner, we have the beginning of
pre-release season. Over the next 3 to 4 weeks, companies will
let Wall Street know that their profit/sales goals are not being
met, and their stocks will get brutally punished.
Energy Prices:
With the rapid rise in crude oil, everything from manufacturing to
transportation will be affected by higher costs. These higher costs
will be felt 1-2 quarters out, and could put pressure on profit
margins.
Investor Expectations:
More and more investors are now expecting high double-digit growth
if not triple-digit expansion in their portfolios. This extreme
positive sentiment could help fuel a future selloff in technology
shares.
Volatility Index (21.29):
The VIX continues to prove that the low 30's are an excellent
buying opportunity, and the low 20's continue to be a great selling
opportunity. The VIX is currently indicating an overbought market.
The Power of Sentiment Analysis
It has often been said that the crowd is right during the
market trends but wrong at both ends. Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.
Pinnacle Index OEX Friday
Benchmark (3/3)
Overhead Resistance (790-820) 16.85
Overhead Resistance (765-785) 6.23
OEX Close 765.95
Underlying Support (740-760) 0.69
Underlying Support (700-735) 2.71
What the Pinnacle Index is telling us:
The OEX got a nice lift on Friday thanks to the employment figures,
however, the Pinnacle Index is indicating that the OEX is due for a
little breather. Both overhead resistance levels are top heavy,
indicating that the OEX will struggle at these respective benchmarks.
Put/Call Ratio Friday
Strike/Contracts (3/3)
CBOE Total P/C Ratio .40
CBOE Equity P/C Ratio .32
OEX P/C Ratio 1.36
Peak Open Interest (OEX)
Friday
Strike/Contracts (3/3)
Puts 680 / 9,154
Calls 750 / 7,497
Put/Call Ratio 1.22
Volatility Index Major
Date Turning Point VIX
October 97 Bottom 54.60
July 20, 1998 Top 16.88
October 8, 1998 Bottom 60.63
January 11, 1998 Top 26.38
March 4, 1999 Bottom 28.15
May 14, 1999 Top 25.01
July 16, 1999 Top 18.13
August 5, 1999 Bottom 32.12
October 15, 1999 Bottom 32.06
January 28, 2000 Bottom 29.09
March 3, 2000 21.29
Investors Intelligence
Major Percent Percent
Date Turning Point Bullish Bearish
October 97 Bottom 22.0 48.3
July 20, 1998 Top 52.0 24.0
October 8, 1998 Bottom 38.5 42.7
January 11, 1999 Top 58.3 30.0
March 4, 1999 Bottom 49.1 32.5
Oct. 13, 1999 Bottom 39.2 37.5
February 25, 2000 51.8 28.6
March 2, 2000 52.3 28.3
*************
COMING EVENTS
*************
For the week of March 6th, 2000
Monday
None Scheduled
Tuesday
Productivity-Rev. Q4 Forecast: 6.4% Previous: 5.0%
Consumer Credit Jan Forecast: 7.0B Previous: 11.2B
Wednesday
Fed Beige Book
Thursday
Initial Claims 03/04 Forecast: 280K Previous: 275K
Wholesale Inventories Jan Forecast: 0.4% Previous: 0.4%
Friday
None Scheduled
Week of 3/13
03/14 Retail Sales
03/14 Retail Sales ex-auto
03/15 Business Inventories
03/15 Export Prices ex-ag.
03/15 Import Prices ex-oil
03/15 Industrial Production
03/15 Capacity Utilization
03/15 Current Account
03/16 PPI
03/16 Core PPI
03/16 Housing Starts
03/16 Building Permits
03/16 Initial Claims
03/16 Philadelphia Fed
03/17 CPI
03/17 Core CPI
03/17 Michigan Sentiment
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This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in
options. It is possible at this or some subsequent date, the
editor and staff of The Option Investor Newsletter may own,
buy or sell securities presented. All investors should consult
a qualified professional before trading in any security. The
information provided has been obtained from sources deemed
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely
information to its subscribers but cannot guarantee specific
delivery times due to factors beyond our control.

The Option Investor Newsletter 3-5-2000
Sunday 2 of 5
*************
WOMAN'S WORLD
*************
Conversion Ratios are Important
By Mary Redmond
My best trade this week was my Qwest leaps. I was getting
a little tired and bored of this stock on Monday when the
stock drifted down to 46, and my leaps drifted to 14 1/2.
On Wednesday a rumor crossed the newslines that Deutsche
Telecom was in takeover talks with Qwest. The stock shot
up to 58 on Wednesday, and I thought it had further to go.
The next day it opened over 63, and I sold my leaps at 28 1/2
for a 16 1/2 point gain. I still thought the stock was a good
buy so I bought back in to Qwest 2001 50 leaps at 15. Neither
company had publicly commented on the rumors. If the
takeover actually happens one of the important factors to
watch for is company management changes. When the
management of a company is not given the same freedom and
decision making abilities, corporate mergers sometimes work
out for the worst. On Thursday afternoon additional news
came out that Deutsche Telecom was in discussions with
Global Crossing and Qwest stopped trading temporarily,
then resumed in the range of 58 to 60. On Friday I sold the
leaps at 17 5/8 when the VIX dropped below 22. I like Qwest
even at a market capitalization of over 44 billion, regardless
of the takeover topic. Later Friday news crossed Reuters that
that DT and GLBX were not holding discussions. This on again
off again started making me dizzy.
IFCI sold off after earnings but stayed above 30 , which I
interpret as continued interest in the company. The backlog
of orders this company has looks as if their revenues could
double or quadruple this year, and I like it as a long term
holding.
CMGI popped like a champagne cork early in the week,
probably because of upcoming earnings and the fact that
the company presented to institutions at the Robertson
Stephens conference this week. I sold the shares I bought
a couple of weeks ago on Monday, then bought back in
at 127 1/2. The stock hasn't had as dramatic a run up to
earnings as it did last fall, when it went from 100 to over
300. It may sell off after earnings, but CMGI is one of the
few companies which has a history of going up slightly after
earnings. In addition to buying the stock I had put on a
put credit spread previously by buying 10 CMGI march 100
puts at 3 7/8 and selling 10 CMGI March 110 puts at 7 1/4.
This gives a credit of almost 4 points if CMGI can stay
above 110 before expiration. Another possible strategy
would be to sell the 110 put naked, but this can tie up
alot of margin.
I still think CMGI is undervalued long term, and has a superb
management team, but the internet sector has not performed
as well as some of the other sectors like chips and biotechs
lately, so CMGI may stay in a trading range for a while.
Some people have been making meaningless comparisons to
ICGE, which is not relevant since they have different
business models.
On Wednesday of this week I bought Nextlink July 100 calls
at 24 1/4 when the stock was 110 and sold them at 26 the same
day. The reason I liked the calls is that they were already
ten points in the money. When the 100 calls sold down to
25 I put on a call spread buying the 100 calls at 25 and
writing the 110 calls at 19. On Friday I considered buying
straight calls but I hestitated with the VIX at about 21.5.
I had purchased a Lucent leap back when Lucent was 50,
and sold the leap when the stock went up to over 70
this week. I think Lucent is a great long term buy, but
any time an option doubles I think it should be sold.
Sometimes when you are bullish on a stock after it has moved
up it can be more profitable to sell puts than buy calls.
The reason is that volatile stocks have both volatile
call and put ratios. This is because of a strategy known
as a conversion, which is theoretically a risk free profit
usually only executed by market makers and specialists
on the floor of the exchange. Understanding how the
conversion strategy works can be important to understanding
how options are priced.
A conversion strategy consists of buying 100 shares of the
underlying stock, buying a put and selling a call where
the call and put option have the same strike price and
expiration date. This position has a theoretically risk free
profit if the cost of the position is less than the strike price
of the option. Whenever the call/put ratio is out of whack
arbitrageurs and market makers will execute conversions
until the ratio is precise. Individuals trading for their own
accounts at brokerage firms rarely have the opportunity
to profit from conversions due to transaction fees.
An example of a conversion is as follows: Buy 100 CMGI
at 132, buy a June 130 put at 23 (the price Friday afternoon)
and write a June 130 call at 26 7/8. The cost of the position
is the cost of the stock plus the cost of the put minus the
credit received from the call. In this case the profit is only
1.87 points. What the stock does during the rest of the
time period is irrelevant. The only risk is if the stock closes
at exactly the strike price on expiration date in which
case you don't know if you will be called. If the stock is not
called and drops Monday morning there will be a loss.
In this case certain traders might think it makes more
sense to sell the 130 put and receive 23 points than to
pay 26 7/8 for the call.
The money flows this week may have been helpd by over
50 billion in tax refunds the IRS has already mailed. Some
of that money will come in to the market. According to
AMG Data Services, cash flows into stock mutual funds
have already picked up after dropping significantly
the prior two weeks. For the week ending March 1,
over 10.9 billion went into equity mutual funds. Tech
funds took in 2.6 billion, small cap aggressive growth
funds took in 5.3 billion, and international funds took
in 5.3 billion. Look out for that money to be spent.
Mary Redmond
Contact Support
**************
QUE PASA? OEX Ole, Ole (pronounced oh-lay, oh-lay)
By Linda Schuepp
Warning: You may skip the first 2 paragraphs if you are in a hurry.
It's been a while since my last article, but I have been away on
my yearly Mexican getaway, followed by an Option's Seminar in L.A.
I was pleased to meet many OIN readers at that seminar. Thought
I'd give you a little update, since I received so many inquiries
about my planned escape. This year it was quite an ordeal to get
to my annual Mexican Spa destination. I go there as a relaxing
retreat, to get away from the market, responsibilities and every
day life in general. I was originally routed through Chicago
during the only major snowstorm the east has seen this winter.
The prospect of getting marooned in Chicago for several days, is
not my idea of a relaxing vacation so I, along with a couple of
thousand other panicked "President Week" travelers, attempted to
find alternative routing. After leaving Boston a day later than
scheduled, I had to fly to San Francisco, stay overnight, and get
up at 5 AM the next morning in order to catch a 6:15 A.M. flight
to L.A. From L.A., I took yet another flight to Mexico City
finally arriving at 4:30 P.M. the following day, two days after
I began the journey. From there it was a 2-1/2 hour hair-raising
ride through the twisting, mountainous roads in a vehicle with no
shocks. I was fortunate not to have to share the vehicle with any
live poultry. Needless to say, I was desperate for a massage and
a good margarita. It was too late for the massage, but I
comforted myself in the outdoor hot tub with a few margaritas.
I really try to leave the market and the rest of my world behind,
but this year the spa offered Internet access. Wow, I thought,
I can check a few stocks, send a couple of e-mails to my family
and still have a ball. You will recall, I own Tel Mex stock, so
I figured, this could only help my position. I only connected
twice during the week because it took 20 minutes to get a clean
connection, and when I did I was connected at 200 baud. My
daughter thought she'd be cute and send me a greeting card to
say she missed me. It took 20 minutes to download it. Needless
to say I didn't bother checking the market.
During the week I had lots of pool time to reflect on my OEX
strategy I wrote about before I left. I put on an "At the Money"
straddle on the OEX before I left, with instructions to my broker
to sell either leg if I could get 5 points. With a delta of .5
for an ATM option, I figured if the OEX moved 10 points I should
be able to get my 5 points. The put side was closed out while
I was gone and I was able to close out the call side this past
week for 5 points as well. Since I returned I have spent an
inordinate amount of time trying to tweak the strategy, but
because I do not have historical daily option data for more than
5 days, it is quite difficult to accurately backtest my strategy.
If anyone knows of a service, feed or publication that provides
historical option data such as: daily open, hi, lo, and close--
please let me know immediately.
I've been asked a lot of basic questions by new readers as to
which strategies you should put on and when. It sounds very
complicated and seems that the possibilities are endless, but
there are really only a few strategies you need to understand.
Simply focus on the key issues and implement the proper strategy.
Step 1: Review charts of the security(s) you wish to trade and
determine key support and resistance levels
Step 2: Determine Market Direction (sector & exchange)
Step 3: Check Historical and Implied volatility to determine if
options are expensive or cheap.
Step 4: Pick your Strategy
Step 5: Determine your exit (both good and bad)
Step 6: Put on the Trade
After step one, you should have 4 or 5 candidates. After step
two, It is best to choose those securities that are trading in
the same direction as the sector and the exchange. The old
saying "the trend is your friend" is never too trite. It is
much easier to make money on a stock that is going up along with
its sector and along with the exchange it trades on.
If the market is going up: implement bullish strategies.
There are really only 4 main strategies-buy a call, sell a put,
buy a bull call spread, or sell a bull put spread.
Buy a call-simple strategy, but subject to time decay. Biggest
mistake people make is to buy OTM calls on stocks with no
liquidity or calls with too little time left. As a buyer, time
is your enemy. If I buy calls, and it isn't too often, I try
to buy with at least 2 months left and some intrinsic value
("in the money"). I actually prefer leaps (Long Term Equity
Anticipation Security). Check with your broker, but you are now
only required to put up 75% on options with 9 months or greater
to expiration. This greatly changes your potential returns!
Sell a put-simple strategy, but subject to larger margin
requirements and greater risk. I like to write OTM puts BELOW
a support with very little time left. I am basically a chicken
when it comes to naked positions. As a seller, time is your
ally.
Buy a Bull Call Spread-buy a lower strike ATM or ITM call and
sell a higher OTM call. Think of this as a covered call, except
that you are long a call instead of owning the stock. Your risk
and reward are both limited, but you can't have it all.
Sell a Bull Put Spread-buy a lower strike ATM or OTM put and sell
a higher strike ITM put. This will put money in your pocket,
which is why a lot of people like this one. Like the Bull Call
spread, your risk and reward are both limited.
If you are bearish, you would do the opposite of the above four
strategies: buy a put, sell a call, sell a bear put spread, or
buy a bear put spread.
Regarding Step 3: If implied volatility is greater than
historical volatility, than options will be expensive, therefore,
you should be a seller of options (sell a call, sell a put, sell
a spread). If options are cheap you should implement long
strategies (buy a call, buy a put, buy a spread). So once you've
determined market direction there are really only 3 strategies
you can implement and they depend on your level of comfort.
Now here comes the hard part. Determine your exit strategy.
Do this before you place the trade. Write it down, put a copy
on your bathroom mirror if necessary and follow it. Don't be
greedy if your winning, and don't be a sucker if your losing.
Now here comes the easy part. Put on the trade and monitor it.
Don't put all your eggs in one basket. You should have at least
4-5 different positions, hopefully not all in the same sector.
That way, if one trade is a loser, chances are the other 4 will
be winners. As Jim says, "sell too soon", and that means if
you're winning but especially if you're losing!
Lynda Schuepp
Contact Support
***************
Renee will be back on Tuesday
***************
TRADERS CORNER
***************
A Nice First Day Back & Trading Checklist
By Janar Wasito
All vacations should go this well -- a great trip and a terrific
rally on the first day back. It was hard not to be happy about
the market today. Almost all of my plays were up, and big:
New LEAPS, purchased a few weeks ago: BRCM (+26), SEBL (+18),
IMNX (+23), NOK (+8). These are going to be the basis for my
LEAP/ Calendar spread strategy on stocks that are Gorillas,
split often, and thus offer maximum potential to capture
volatility by selling calls with 10 days to expiry against LEAPs
with 22 months to expiry. My other LEAPs are GE, CSCO, QCOM,
GSTRF. Nice to see some huge moves in my new LEAPs!
Bull Spreads: JDSU (+7, both March Credit and Sept Debit Spreads);
CMGI (+10, Jan01 Debit Spread); ICGE (+8, Sept Debit Spread); NOK
(+8, July Debit Spread); IMNX (+23, March Credit Spread); VIGN
(+18, July Debit Spread). The principle in my spread trading is
that the 30 day or less credit spread (always 1:1 reward: risk
or better) is the solid rocket booster that generates the cash
flow to put my longer term debit & credit spread plays (always
2:1 reward: risk or better, preferably 3:1+) into a position to
capture even higher rewards over a longer period of time. There's
no free lunch: my returns are lower than if I had opened straight
call plays on these stocks. On the flip side, I think that I can
sustain this type of trading for a longer period without burning
out. I think that I can control my draw downs more effectively
with this style of trading. I also feel that I can use this
methodology to manage a larger scale of money.
I spent a lot of time on the flight back reading various business
magazines about where the economy is headed. Many articles are
arguing that most Internet companies are going out of business
because new dot.coms are going to run out of advertising dollars,
etc, etc. Money managers who have been losing out of the technology
boom are spilling a lot of ink (electrons?) trying to project a
bubble, etc. I live in the heart of the Silicon Valley explosion,
and I believe exactly the opposite. I think that the shift to new
economy companies will continue and accelerate. Individual and
institutional investors have been pulling cash out of the DOW stocks
and putting it into aggressive growth, technology funds. Those fund
managers are going to trade the new cash like you and I trade
options: they are going to put it into new, hot sectors, as they
emerge. Watch for the emergence of new sectors, and the
fragmentation of sectors. Which Biotechs are going to aid the
development of biocomputing? Jim Clark, founder of 4 billion dollar
companies, just sank 150 million into the Stanford Industrial
Engineering program in biocomputing. Which networking companies
are positioned to benefit/lose when optical networks kill SONET?
Internet companies? What is NOT an Internet company today? Which
ones will aid the boom in personal finance & trading as Baby
Boomers become week- or day-traders like a crowd of hippies at
Woodstock? Which healthcare companies will those Baby Boomers
need when they hit 60 later this decade and the next? I am not
saying the market will go straight up. I think that there will
be big pull backs, and, with the speed of money today, they will
be very fast. But I do think that the general direction is up.
It will not be enough, though, to pick a basket of leading tech
stocks, and to put a lot of cash into them. DELL, AOL, MSFT are
all great companies, but they are hit tunes from years past, not
2000.
Here is my trading checklist. It answers a lot of questions that
I have received from readers over the past few weeks. I basically
spent the first two monthes of this year re engineering my approach
to trading. I had to go through this process because of a great
QCOM trade that resulted in a massive gain, and a different scale
to my portfolio. Not wanting to trade with only a small percentage
of my assets, I decided to come up with a methodology that would
minimize my risk, while putting a significant % of my assets in
play. I also learned the hard way that a system that does not take
stress into account cannot work over the long run. My schoolwork
may have suffered a bit, but I think the end result -- both in
financial terms, and in terms of my ability to do this for the
long run -- are worth the effort. This checklist works for ME,
and should not be construed as a recommendation for any one person
in particular. Use it for what it is worth. It is also a work in
progress, and it doesn't mean a thing if you can't pull the trigger.
A lot of traders have tons of programs, all the reference books,
and detailed checklists, but they still are too reluctant to put
on a trade. This is probably a combination of lack of capital,
overall life situation, and the result of getting burned. My goal
is to make my trading a lot more like training for an athletic
event -- consistent workouts, good decisions, and heads up play
on game day. Nothing in here is rocket science, but it does
require consistent work. This approach to trading takes the best
of different methodologies I have been exposed to -- Jim Brown
and this newsletter's market awareness and stock selection; George
Fontanill's lower stress approach to combination plays; elements
of trading psychology from Jack D. Schwager, ed., The Market
Wizards & The New Market Wizards, and Marty Schwartz, Pit Bull.
As you attempt to put together your own checklist (and you must put
together your own, even if you copy parts of other trader's work),
remember this -- less is more. If you can get the strategy that
fits your personality from a free source, or a book, all the better.
If you can find it on the web, print it out, read it over and over
until it makes sense, great. Don't feel like you are better
prepared to face the market because you have 3 different real
time quote services, 5 brokers, and some expensive, proprietary
software that costs a fortune. Those costs all come out of your
bottom line in the business you are running. I use this newsletter,
qcharts, and if I could have only one broker, it would be
preferred trade. The rest of this, I have put together from sources
on the web (free trials are great), books, lunches with some other
traders, etc. I have also worked through a variety of strategies
because I need to be in a trade to really perceive the dynamics
of things like time decay (theta) and why it can be so profitable.
There are tons of great mathematicians in business schools and
investment banks, but the real test is who can make money. My
finance professor has been in inflation indexed treasury bonds
and East Asian funds for the past few years because his extensive
knowledge tells him that these are the assets which make the most
sense. But after you have gone through the different strategies,
I think it is best to settle on the two that work best for you.
For me, those are credit/ debit spreads and LEAP/ calendar spreads.
Read extensively, try everything, then settle down with a few
strategies and execute. Less is more. As I trade, I will doubtless
boil down this monstrosity even more.
Trading Checklist
1. Money Management.
a. Principles
i. Trade for the long run. Avoid compressing/ stretching the
spring. Take at least one week of solid vacation per month.
Reward successful period with travel & recreation. View trading
as an athletic challenge.
ii. George's Rule: Success in Trading is determined by how much
you put into stable assets like cash & real estate, not by how
big your trading account gets.
iii. Corollary to George's Rule: Success in Trading is determined
by what you do with your non-trading time, not by how much time
& effort you put into trading.
iv. Ed Seykota: Everyone Gets What They Want from the Markets.
I want $_____ dollars, after taxes -- not more, not less.
v. Paul Tudor Jones: Play Great Defense, Not Great Offense.
b. Stop Loss Rules
i. Position: Immediately exit positions which are down 15%, or
7% of underlying stock
ii. Portfolio: Immediately close 50% of positions when down 3%
from previous month's close; repeat as necessary.
c. Asset Allocation
i. LEAPs/ Calendar Spreads (50%) ("LT Option Account")
1. Add 8% of total available assets to LEAP positions each month.
a. 2% per LEAP
b. 1% per 9 month call (where LEAP is unavailable)
2. Maintain cash reserve of 15% of total assets
3. Sell current month calls with 10 days remaining at oversold
moments. Target: Pay for 5% of LEAP per month.
a. Principle: Shorting calls with 10 days until expiry lowers
the cost of LEAPs
ii. Spreads (50%) ("ST Option Account")
1. Max Risk: 1% per position
2. 30 or Less Credit Spreads (Bull Put Spreads): 10 15 per month.
a. Always 1:1 Reward: Risk or better
3. 3 to 6 month Debit & Credit Spreads
a. Only as many as previous month's credit spreads have "paid for."
b. Always 2:1 Reward: Risk or better, preferably 3:1.
iii.Future Asset Classes: Real Estate (50% or less), ________
(% to be determined)
2. Stock Selection
a. Time Allocation. Sunday after 6 P.M. until completion. One
hour per weekday evening.
b. Sector. Look for hyper growth benefiting Baby Boomers. (The
Long Boom, Roaring 2000s)
c. Leading Companies. Look for Gorillas. (The Gorilla Game,
Crossing the Chasm) Trade what I understand (One Up on Wall Street,
Beating the Street)
d. Watch List
i. Add companies from OIN Sunday, Tuesday & Thursday newsletter
to watch list with entry (support) points
ii. Set up credit spread plays with break even or max profit at
suggested support levels
iii.When company is removed from OIN play list, add it to the
appropriate watch list category: Internet, Computer Software,
Networking, Wireless, Biotech
1. Be fast to add new sectors as they emerge
iv. Each Sunday, update watch list in my.yahoo.com, note upcoming
earnings & splits and recent new highs; cruise company web sites.
v. Candidates for Spreads
1. Consolidation on major support
2. Low Implied Volatility for Debit Spreads
3. High Implied Volatility for Credit Spreads
4. Deep OTM Options Available
vi. Candidates for LEAPs
1. Huge Market, Good Management, Sustainable Competitive Advantage
2. 2 or More Splits in Last Year
a. Principle: Time & Volatility Premiums remain similar for the
split LEAPs, and for the calls which can be sold against the LEAPs.
e. Sources: View trading as an opportunity to learn about business
& the most exciting period in history.
i. Investors Business Daily
ii. San Jose Mercury News
iii.Red Herring
iv. OIN (Calls, Naked Put Candidates, Local Club)
3. Checklist for Taking Position (Entry/ Strategy Selection)
a. Time Allocation. 30 Minutes after market opens. 60 minutes
before market closes.
b. Market: Is the Market overbought or oversold?
i. Check Charts & Moving Averages prior to making a trade. Don't
go against them.
ii. VIX. Below 22 = overbought. Over 28 = oversold.
iii.TYX. Less predictive power, but note for macro shifts in direction.
iv. DOW, COMPX, OEX
1. Resistance & Support Levels.
2. Above/ below 10 Day Exponential Moving Average (EMA). Above =
green light (beware reversal). Below = red light (might be entry
point)
3. Hitting Bollinger Bands
a. Above = Overbought
b. Below = Oversold
4. Stochastics: Major drop offs = entry points
v. NDX/ NDOOH & SPX/ SPOOH. Are the futures above/ below the
cash? Beware 3:20 Sell Program.
vi. ADVDECV.NQ & ADVDECV.NY. View in 30 minute chart to spot
intraday reversals which might be entry points.
vii.Are we above or below moving averages, i.e., in positive or
negative mode?
viii.Are we above or below a dominant trend line?
ix. Has recent price action taken out previous highs or lows?
c. Sector: Is the Sector over bought or oversold?
i. Sector Indexes (CWX.X, MSH.X, SOX.X, DOT.X, XCI.X, NWX.X,
BTK.X, GIN.X, XBD.X)
1. Resistance & Support Levels
2. Above/ below 10 Day Exponential Moving Average (EMA). Above =
green light (beware reversal). Below = red light (might be entry
point)
3. Hitting Bollinger Bands
a. Above = Overbought
b. Below = Oversold
4. Stochastics: Major drop offs = entry points
ii. Leading Stocks. Are there major news driven moves in the
sector leaders (splits, earnings, new products)?
iii. Market is oversold, Sector is Neutral/ Overbought: Do Nothing
iv. Market is overbought, Sector is Neutral/ Sold: Do Nothing
v. Market is oversold, Sector is oversold: Look at stocks
vi. Market is over bought, Sector is overbought: Look at stocks
d. Stock
i. Individual Stock
1. Resistance & Support Levels
2. Above/ below 10 Day Exponential Moving Average (EMA). Above =
green light (beware reversal). Below = red light (might be entry
point)
3. Hitting Bollinger Bands
a. Above = Overbought
b. Below = Oversold
4. Stochastics: Major drop offs = entry points
ii. Splits, Earnings, New Products?
iii. Market is Oversold, Sector is Oversold, Stock is Neutral/
Overbought: Do Nothing
iv. Market is Overbought, Sector is overbought, Stock is Neutral/
Oversold: Do Nothing
v. Market is Oversold, Sector is Oversold, Stock is Oversold
1. Buy LEAPs
2. Enter Bull Spreads
3. Adjust Bull Spreads (Close Short Leg of Bull Call Spread)
vi. Market is Overbought, Sector is Overbought, Stock is overbought
1. Write Calendar Spread
2. Exit Bull Call Spread
e. Always ask before taking a position: do I really want to
have this position?
f. Always know the amount I am willing to lose before taking a
position. Know the uncle point and honor it.
g. After a very profitable run of trading, reduce the position size.
h. After a successful period, take a day off as a reward.
i. Tricks of the Trade:
1. Gaps in Charts
2. Mutual Fund Cash
3. Three Day Rule
4. Put/ Call Ratio
5. How Market Reacts to News
6. New Highs/ New Lows
7. Up Mondays
8. Market Probability Calendar
9. Option Expirations
10. Trading on the Half Hour
11. Take Out the Highs/ Take Out the Lows
12. First Trade Back
13. Worst Fears Not Realized
14. Ego: "I can tell you how I became a winner I learned how
to lose."
Janar Wasito
Contact Support
******************
OPTION CLUB UPDATE
******************
Sunday, March 5, 2000
THE OPTION INVESTOR TRADING CLUBS ARE THE PERFECT SOLUTION TO
THAT "TRADING ALL ALONE" FEELING!!!
Visit the trading club message boards and see what others have
to say:
http://boards.OptionInvestor.com/tradersclubs/
UPDATE FROM ST. LOUIS, MO
*************************
We had our regular meeting on Monday the 21st. Our attendance
continues to build and I continue to get more people who are
interested.
We viewed an instructional video about splits and split runs.
This was followed by a discussion of split plays and the split
trader. Again, thanks to Mike Moore and the Deckerd's for the AV
support.
Our next meeting will be March 6. At that meeting each person
will present a play - successful or unsuccessful- and discuss it.
Why you did it, what your plan was, how it went and lessons
learned. Remember it is good to learn from others' mistakes and
the more we have the fewer mistakes you will make.
A few weeks ago I presented a put spread I did on MSFT. Here's an
update. So far I have had 400 shares (I did 10 contracts) put to
me. In each case I sold the shares and then sold my long puts
with enough spread to about breakeven. First 200 I actually made
a few bucks, but on the second my only loss was from commissions.
This was one of the motives for doing this play. If it didn't
work there was very little downside with very positive upside.
I think MSFT has good upside. Just not now. I will probably try
to trade out and close the position with a profit.
Our lunch today had a record attendance. I secured Ozzie's Bull
Pen for each Thursday in March so lunch will be there until further
notice. We will reserve it month to month.
Any questions or need information drop me a note. Look forward to
seeing everyone on the 6th.
Maris
**************
BROKERS CORNER
**************
WHAT MAKES A TRADER HAPPIER?
A PROFIT$$$ OR HOPEFULLY MORE PROFIT$$$
By Alan Knuckman
The goal of all trading is to make money. That fact is
sometimes lost in the battle with the market and the emotional
effect it takes on us. Ego gets in the way of our decision making
process and unfortunate results can occur. Mastering emotions
requires discipline and planning prior to entering a trade.
If you place a profit taking order at a level you would be
happy with of $500, $1000, $2500, etc, the only regret is that
YOU COULD HAVE MADE MORE MONEY. If it doesn't get there you can
always adjust your exit but at least a goal is in place. At
minimum exit half of the positions if you double your money.
The worst thing that could happen is you break even. It
certainly beats losing money.
Everyone's measure of a successful trade is different.
Some traders would rather lose money than miss out on a big move.
Chasing markets or greedily refusing to take profits often catches
up with you. Another day always leads to more opportunities.
MANY TRADERS HOLD POSITIONS TOO LONG and are afraid of what they
may miss not being in the market. Fear and greed are not the
deciding factors for successful traders.
The natural tendency for traders is to get out when a
position is going against them or because they are afraid to
give back profits. It is very hard to think clearly if fear
is used in determining when to exit. A disciplined trader
places both a profit taking order at a level they are happy to
exit and a protective stop loss if the market fails to act as
they had planned. When the emotions involved in trading are
minimized more successful results usually follow.
The strategy of peeling off positions at different levels
and setting targets instills trading discipline but doesn't suit
everybody. The emotional "would have, could have, should have"
trader sometimes tries to feel when it is time to exit. That
style of trading is not necessarily focusing on monetary success
but instead the entertainment value in being right. An
experienced trader would use the peaks and valleys to exit and
possibly reenter positions. As obvious as it seems making some
money is always better than losing.
A stock can always move much higher or lower than you
anticipated. Choosing the top or bottom is nearly impossible
and the majority of money is made somewhere in the middle.
Try to determine before hand what makes you happy as a trader
and your results should be better.
Alan Knuckman and Andrew Aronson
Lasalle Options
Toll-Free 888-281-9569
www.lasalleoptions.com
***********
An Osmotic Technical Point of View
A view from the edge.
Well, was that an interesting week or what? For me it was so in
more ways than one. Don't know about you but, I made more money
last week than I had so far this year up until Monday. Brian Eno,
whom I respect very much once said "Don't be afraid of things
because they're easy to do" and I think that may be the quotation
for the week.
Last week was kind of a blur for me trading wise, other than
everything was easy. Entered trades when the charts said to,
put the stops in, and also traded Osmotically. That is I listened
to that quite little voice in the back of my head and exited or
entered a dozen or so trades earlier than the chart indicated.
Was right every single time too Your subconsious gray matter is
pretty wonderful when you listen to it.
The twist this week for me was that I had my third brush with
mortality in the past 10 months Monday evening. It could best be
described as a catastrophic failure of a mechanical device. I think
that I need to change hobbies. This one was as close as I ever care
to get. As the numbness of actually how close this one was wears off
a bit, I can state unequivocally there is no stiffer tonic to help
you reexamine your priorities in life. It has allowed me for however
briefly, to reduce things to their lowest common denominator. I
think that is partially why trading was "easy" this week.
I hope that all of you who have followed the ETEK equation are
having fun! How about that premium! I suggest the you might want
to consider taking some of the $100+ that you have made on those
calls off the table. Sometimes the most profitable plays are too
obvious (see quote above).
Considering the response that I received from my story on charting,
I am going to see if Jim can put in some charts to show you how I
judge getting into and out of some of my plays. Ones that I have
actually made money on. You can get theoretical BS just about
anywhere but, not here. These are by no means scientific or maybe
even "correct" but, they work for me.
Well, I shall leave you with a suggestion for those of you that
racked up some big gains this week. Take some of the money and go
do something for the ones that you care for. Do not wait around to
later either. Do it today! Otherwise, what are you really trading
for?
Happy Trading!
**************
"Ever heard of the skew effect?"
By Lee Lowell
Ok, now that we've got a handle on the different types of
volatilities and how to figure them out, let's see how we can use
it to our advantage in the marketplace. As I was talking about
my last article with my father; he said to me, "explain how this
volatility thing works with an example".
Here's what I showed him: (hypothetical example)
March 1, 2000 March 1, 2000
IBM stock $100/share YHOO stock $100/share
IBM June $100 call = $5 YHOO June $100 call = $10
Why is YHOO's June $100 call double the price of IBM's $100
call? They both have the same stock price, the same strike price,
and the same expiration date. (we'll leave out interest rates
and dividends since they don't have a major effect). There is
only one explanation for the difference in option premiums, and
that is VOLATILITY! YHOO is a much more volatile stock than IBM
and it is reflected in its option premium. YHOO can blast through
so many different strikes on any given day and then reverse itself
back down too. IBM takes the nice slow path of going through
strikes (if it moves at all). Since YHOO has the ability to turn
out-of-the-money options into in-the-money options more quickly,
its volatility component will be much higher. This is the effect
volatility has on option premiums.
Let's move onto something deeper. Have you ever heard about
volatility "skews"? This is one characteristic of volatility that
makes for great trading opportunities. In a perfect market, all
the implied volatilities of each strike in an option chain would
be trading at the same level. For example, XYZ corp. is trading
at $65 and has option strikes ranging from $50 - $100. Each option
(puts and calls) has an implied volatility of 35%. This is what's
called a flat skew. Most stable stocks can have this sort of flat
skew. Now, very volatile stocks can have what's called a sloping
skew. This is when the implied volatilities for each strike are
different. ABC corp. has strikes ranging from $25 - $200 because
it has moved within that range over the last 3 months. It is
trading at $80 today and its implied volatility for each strike
looks like this: 75%, 77%, 80%, 82%, 85%, 88%, etc. etc. starting
with the at-the-money call strike and moving higher. The same can
be said for the puts. Starting with the at-the-money put and
moving lower in strikes.
Here's what the levels would look like for XYZ corp.:
Calls Strike 80 85 90 95 100 105
Imp. Vol. 75% 77% 80% 82% 85% 88%
PutsStrike 55 60 65 70 75 80
Imp. Vol. 88% 85% 82% 80% 77% 75%
You can see as the calls increase from the at-the-money strike,
so does the implied volatility. And as the puts decrease from the
at-the-money strike, the volatility goes up. The out-of-the-money
strikes have the higher implied vols. This is called a "smiling
skew" because if you plotted the levels on a graph, it would look
like a smile. What is the reason for this? Good question. It is
mostly because of the uninformed amateur option players out there
that make up most of the general public. And due to lots of
speculation. Many traders like to play the out-of-the-money
options because they are cheap and the rewards can be huge if the
stock moves in their favor. As the volume increases in the
out-of-the-money options as more people want to get in on the move,
there is pressure to bid up the option premiums and the market
makers are aware of this. So they keep bumping up their asking
prices. This is turn leads to higher implied volatilites on these
options. This holds true for calls and puts. One of the reasons
why the puts have this sort of skew dates back to the crash of '87.
Many people got burned on the downside so lower strike puts will
usually have higher implied volatilites now. This is really evident
in the S&P 500 put options. If you are using a real-time data feed
that gives implied volatility levels for an option chain, look for
the skew effect.
Not all skews are smiling though. Some options have downward
sloping skews in the calls as the strikes increase. This is due
in part by many large hedge funds and institutional firms that
employ covered call writing. These funds are long the underlying
and short the calls against them. As many more firms employ this
strategy and sell the calls in volume, this tends to bring down
the call premiums, thus lowering its implied volatility. At the
same time as the call are sold, these same firms may be buying
the downside puts for protection too. (thanks to the '87 crash
effect) This tends to raise the implied vols of the
out-of-the-money puts as I said before. So the volatility "skew"
can have a few different shapes. Just look at different option
chains that supply implied volatility numbers and you can see
this effect.
So how do we use the skew effect to our advantage? It can
be employed in a few different spread type strategies. Let's
start with options that have a smiling skew. If you are bullish
or bearish on a stock but want to be conservative in your option
strategy, then you can initiate debit call and put spreads to
lower your overall cash outlay. If you buy a call spread on
options with a smiling skew, you are assured to buy the option
with the lower implied volatility and sell the option with higher
implied volatility. For a put spread, you'll be buying the put
that has a lower implied vol. and selling the put with higher
implied vol. So what does that mean? This automatically puts
the odds in your favor. Or should I say, starts you off with
an advantage. All options on the same underlying stock should
trade at the same volatility, but they don't. Why would someone
pay more (on an implied volatility basis) for an option in the
same chain on the same underlying? I told you before. It's
because of speculators who want to get in on the game and buy
cheap out-of-the-money options. This buying pressure causes
the implied volatilites of the further out-of-the-money option
to slope higher.
So when you buy an option with lower implied volatility
than the option you're selling, you already have the odds tipped
in your favor. Now whether or not you eventually make money on
your spread will be determined by where the underlying stock
ends up. But at least you know that you started with a slight
advantage. Let's look at an example to help clarify my ranting.
XYZ corp. at $50 with flat skew:
Calls 50 55 60 65 70 75 80
Imp. Vol. 35% 35% 35% 35% 35% 35% 35%
Premium 5 4 3 2 1 .5 .25
XYZ $60 - $75 call spread = $2.50
XYZ corp. at $50 with smile skew:
Calls 50 55 60 65 70 75 80
Imp. Vol. 35% 37% 39% 41% 44% 47% 50%
Premium 5 4.5 4 3.75 3.5 3.25 3
XYZ $60 - $75 call spread = $.75
Do you see what happened here? If you bought the XYZ June
$60 - $75 call spread with a flat skew, the spread would cost
you $2.50. But with the smile skew, the same call spread would
only cost you $.75. That's a big difference! That's a $1.75
cheaper per spread. This is what volatility analysis can do
for your trading. It can start you off with an advantage.
I highly recommend checking the implied volatilites for the
strikes you're interested in trading.
Now let's use a different kind of spread to take advantage
of the skew effect. We'll use the ratio spread this time. A
ratio spread consists of buying a closer-to-the-money option
and selling two or more further out-of-the-money options. The
ratio could be 1:2 or 1:3, depending on your outlook and risk
tolerance. Most of the time you would want to initiate a ratio
spread for a credit or $0 net into your account.
Here's an example using the same XYZ data:
If you were to put on the XYZ $60 - $70 1x3 call spread
with the flat skew, the cost would be $0 plus commissions.
Your position would consist of long 1 XYZ $60 call at $3 and
short 3 XYZ $70 calls at $1, for $0 net. (for the short side,
just multiply the number of contracts by the premium. 3x $1 = $3.
So your total long premium minus the short premium = $0)
If you were to put on a ratio spread using the smile skew,
with a ratio of 1x2, here's what the outcome would be. You
would be long 1 XYZ $60 call at $4 and short 2 XYZ $70 calls
at $3.50 with a net CREDIT of $3 in your account. Now that's
nice! And the good part is that your ratio has been reduced
to a 1x2 contract spread vs. the 1x3 contract spread with the
flat skew example. This smaller ratio reduces your outright
risk if the trade should happen to go against you.
Let me just expand on why someone might want to do ratio
spreads and how the final numbers might look. XYZ corp. is $50
today. A trader might believe that XYZ will not go any higher
than $70 per share over the next 3 months. So he/she will put
on a ratio spread of long 1 $60 call and short 2 $70 calls for
a credit of $3 (using the example above). At expiration day,
XYZ closes at $68. Here's what happens:
Long 1 $60 call in-the-money = $8, for a total gain of $4.
($8 - $4 initial outlay = $4 gain)
Short 2 $70 calls out-of-the-money = $0, for a total gain of $7
($7 initial credit)
Total profit = $11.
That's how it works. Not only did this trader begin with
a credit in his/her account, but he/she made even more money
because the prediction was correct. Just remember though, XYZ
could have gone up well past $68 in that time frame. In that
case, the trader would be short more options than long, so they
would have to cover at sometime. (maybe at a loss). With the
$3 initial credit, the breakeven would be at $73 and losses
would start to occur above that number. With the flat skew
spread, the breakeven is at $70 with 2 extra short calls to
deal with if XYZ starts flying past $70.
You can see how the skew effect can give you an advantage.
So it is in the best interest of every option trader to be aware
of the volatility skew. (if there is any). Just check your
option chain data before putting on the trade to see if the
odds might be in your favor.
Next time, I will discuss more strategies to take advantage of
the skew effect.
Regards,
Lee Lowell
Contact Support
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****************************
SEE DISCLAIMER IN SECTION ONE

The Option Investor Newsletter 3-5-2000
Sunday 3 of 5
LAST WEEKS CHANGE FOR THIS WEEKS PICKS:
***************************************
Daily Results
Index Last Week
Dow 10367.20 505.08
Nasdaq 4914.79 324.29
$OEX 765.95 46.17
$SPX 1409.17 75.81
$RUT 597.88 41.14
$TRAN 2434.45 83.19
$VIX 21.29 -7.59
Calls Week
DNA 234.50 59.50 A great week for our play on DNA!
CLRN 138.00 39.00 What a nice start to a brand new play
INSP 259.81 34.50 INSP offers exhilarating space ride
EMLX 190.25 33.13 See what a little good news can do?
VERT 251.72 25.97 VERT gets it's fair share of momentum
CHKP 229.75 24.13 Another command performance from CHKP
JDSU 280.00 23.19 JDSU shares split 2:1 on March 10th
GLW 205.25 17.44 GLW puts on quite a nice performance
CMGI 134.06 16.56 CMGI took the spotlight last week
SEBL 154.72 16.34 Seibel investors and traders rejoice!
INKT 160.97 15.85 Powerful momentum puts INKT in game
ADIC 96.94 12.88 Split run is back in business
MER 107.00 11.13 New, Merrill Lynch charges ahead
CCBL 49.72 10.22 Here's another low cost optical play
QLGC 155.44 10.19 QLGC looks to be on the move again
LHSP 118.25 10.03 This play still worth "listening" to
HGSI 216.00 10.00 Dropped, more like tarnished brass
NSM 77.44 9.44 NSM to announce earnings this Thurs.
ATML 52.44 9.25 Semiconductor optimism boosts ATML
AFCI 65.50 8.06 A fire began to kindle under AFCI
ERICY 104.81 7.19 ERICY just keeps cruising right along
NTAP 199.94 7.00 New, shares to split 2:1 March 23rd
CSCO 137.44 4.69 New, rolling out the red carpet
MDT 51.38 3.94 New, found it's legs and wants to run
Puts
CTS 52.31 -14.06 New, breaks through key $60 level
RNWK 70.19 -8.19 Unable to breakthrough 10-dma on Fri.
MRK 57.50 -2.69 New, MRK continues to limp along
PPG 49.06 0.00 Investors came to their senses
JNJ 73.50 2.31 Dropped, time to abandon this ship
DD 50.75 -0.75 Opportunities for possible entry?
KMG 46.94 6.19 Dropped, alright, enough is enough
STOCKS ADDED TO THE PICK LIST
*****************************
Calls
MER - Merrill Lynch
NTAP - Network Appliance Inc.
MDT - Medtronic Inc.
CSCO - Cisco Systems Inc.
Puts
CTS - CTS Corporation
MRK - Merck & Co.
***************************
PICKS WE DROPPED THIS WEEK
***************************
Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.
CALLS
HGSI $216.00 (+10.00) The silver lining we were looking for in
HGSI is beginning to appear more like tarnished brass. While
we believe the Biotech sector and more specifically the genomics
industry still has a bright future, HGSI released some news late
Thursday that could take shine out of this play. The company
said they will call $200 million in 5% convertible subordinated
notes for redemption and take a $30 million or $0.55 per share
charge. The notes convert into HGSI stock at a price of $71.63
per share, and the conversion right will expire on March 21st.
This dilution of shares would up the number of outstanding shares
by about 2.8 million shares if all notes were converted. Friday
HGSI did open higher but again tested the $200 area. HGSI really
appeared to struggle for most of the session ending the day
+$1.88 to the good. With the dilution coming we will let HGSI
go for now.
PUTS
KMG $46.94 (+6.19) Alright, enough is enough. It looks as
though the bounce that KMG made from $40 may have been
legitimate. Though we still believe there could be more
downside in the near future of KMG, we can no longer justify
hanging on to a put play that posted gains every single day
last week. We cannot deny the possibility that KMG may have
at long last found a bottom and is now attempting to recover.
KMG is now over $2 above its 10-dma and seems to have acquired
a good deal of support. Resistance may be encountered at the
$50 level, however, the risk/reward factor is simply not in
our favor at this point. It is time to let this one slip on by.
JNJ $73.50 (+2.31) Slip on the life preserver and abandon ship.
While JNJ continues to trade at respectable volume levels it's
now stuck in a narrow trading range unable to crack Monday's
all-time low at $70.06. Furthermore it's systematically
developing a pattern of higher-lows. This, in particular, is
not a bearish indication and we're exiting the play.
STOCK SPLIT CANDIDATES
***********************
Current Split Candidates
CHKP - CheckPoint Software
EMLX - Emulex
QLGC - QLogic
GLW - Corning
SEBL - Siebel Systems
INKT - Inktomi Corp
CLRN - Clarent Corp.
Split Candidates that are not current plays
CHINA - China.com
CMVT - Comverse Tech.
EMC - EMC Corp.
PHCM - Phone.com
Most recent announcements we predicted
TERN - Terayon Comm. (most recent pick)
STOCKS WITH UPCOMING SPLITS
****************************
We don't list all splits available, only those we
feel may have play possibilities.
Symbol - Stock Splits/Date
SLR - Solectron 2:1 03-08-00 ex-date 03-09
BFRE - Be Free 2:1 03-08-00 ex-date 03-09
JDSU - JDS Uniphase 2:1 03-10-00 ex-date 03-13
ASDV - Aspect Dev 2:1 03-10-00 ex-date 03-13
SDLI - SDL Inc 2:1 03-13-00 ex-date 03-14
BVSN - Broadvision 3:1 03-13-00 ex-date 03-14
ADIC - Advanced Digital 2:1 03-13-00 ex-date 03-14
ADVS - Advent Software 2:1 03-13-00 ex-date 03-14
ALLR - Allaire Corp 2:1 03-14-00 ex-date 03-15
BRCD - Brocade 2:1 03-14-00 ex-date 03-15
AJG - Arthur Gallagher 2:1 03-15-00 ex-date 03-16
OTTR - Otter Tail Pwr 2:1 03-15-00 ex-date 03-16
WLSN - Wilson Leather 3:2 03-15-00 ex-date 03-16
AMAT - Applied Materials2:1 03-15-00 ex-date 03-16
ADI - Analog Devices 2:1 03-15-00 ex-date 03-16
AGIL - Agile Software 2:1 03-16-00 ex-date 03-17
LRCX - Lam Research 3:1 03-16-00 ex-date 03-17
SFE - Safeguard 3:1 03-17-00 ex-date 03-20
MVSN - Macrovision 2:1 03-17-00 ex-date 03-20
CPTL - CTC Comm 3:2 03-17-00 ex-date 03-20
TLGD - Tollgrade Comm 2:1 03-20-00 ex-date 03-21
IMNX - Immunex Corp 3:1 03-20-00 ex-date 03-21
EVRC - Evercel Inc 2:1 03-21-00 ex-date 03-22
DISH - EchoStar Comm 3:1 03-22-00 ex-date 03-23
PUMA - Puma Tech Inc 2:1 03-22-00 ex-date 03-23
SANM - Sanmina 2:1 03-22-00 ex-date 03-23
CSCO - Cisco 2:1 03-22-00 ex-date 03-23
WON - Westwood One 2:1 03-22-00 ex-date 03-23
NTAP - Network Appliance2:1 03-22-00 ex-date 03-23
NSOL - Network Solution 2:1 03-23-00 ex-date 03-24
ARTG - Art Technology 2:1 03-24-00 ex-date 03-27
TEVA - Teva Pharma 2:1 03-24-00 ex-date 03-27
PCLE - Pinnacle Systems 2:1 03-24-00 ex-date 03-27
HAUP - Hauppauge Digitl 2:1 03-24-00 ex-date 03-27
JWG - JWGenesis 3:2 03-24-00 ex-date 03-27
KCP - Kenneth Cole 3:2 03-27-00 ex-date 03-28
LLTC - Linear Tech 2:1 03-27-00 ex-date 03-28
IQIQ - ViaLink 2:1 03-27-00 ex-date 03-28
SMTL - Semitool Inc 2:1 03-28-00 ex-date 03-29
USIX - USinterworking 3:2 03-28-00 ex-date 03-29
CRGN - CuraGen Corp 2:1 03-30-00 ex-date 03-31
ARBA - Ariba 2:1 03-31-00 ex-date 04-03
VERT - VerticalNet 2:1 03-31-00 ex-date 04-03
RADS - Radiant Systems 3:2 03-31-00 ex-date 04-03
RMD - ResMed Inc 2:1 03-31-00 ex-date 04-03
ADRX - AndrxCorp 2:1 04-03-00 ex-date 04-04
GRDN - Guardian Tech 2:1 04-03-00 ex-date 04-04
SBL - Symbol Tech 3:2 04-05-00 ex-date 04-06
ABGX - Abgenix 2:1 04-06-00 ex-date 04-07
HDI - Harley Davidson 2:1 04-07-00 ex-date 04-10
MFNX - Metromedia Fiber 2:1 04-17-00 ex-date 04-18
MLNM - Millenium Pharm 2:1 04-18-00 ex-date 04-19
AHAA - Alpha Industries 2:1 04-19-00 ex=date 04-20
ELNT - Elantec Semi 2:1 04-21-00 ex-date 04-24
MCLD - McLeodUSA 3:1 04-24-00 ex-date 04-25
GE - General Elec 3:1 04-26-00 shareholder mtg
CYSV - Cysive Inc 2:1 05-08-00 ex-date 05-09
AXP - American Exprs 3:1 05-10-00 ex-date 05-11
ALKS - Alkermes 2:1 05-12-00 ex-date 05-15
SNE - Sony Corp 2:1 05-19-00 ex-date 05-22
CXR - Cox Radio 3:1 05-19-00 ex-date 05-22
MOT - Motorola 3:1 06-01-00 ex-date 06-02
MEDI - Medimmune 3:1 06-02-00 ex-date 06-05
NXTL - Nextel Comm 2:1 06-06-00 ex-date 06-07
ANEN - Anaren Micro 3:2 06-09-00 ex-date 06-12
AA - Alcoa 2:1 06-09-00 ex-date 06-12
NXLK - Nextlink 2:1 06-15-00 ex-date 06-16
EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21
For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter
page.
********************
THE PLAYS OF THE DAY
********************
With all the great plays each week we can never decide
on just one so take your pick.
Call plays of the day:
**********************
NSM - National Semiconductor $77.44 (+9.44)(+4.50)
See details in sector list
Chart = /charts.asp?symbol=NSM
****
JDSU - JDS Uniphase $280.00 (+23.19)(+6.81)
See details in sector list
Chart = /charts.asp?symbol=JDSU
Put play of the day:
********************
MRK - Merck & Co. $57.50 (-2.69)
See details in put list
Chart = /charts.asp?symbol=MRK
*************
DEFINITIONS
*************
SL = Suggested stop loss. Sell if bid breaks this price.
OI = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
MTD = Move to double - amount stock must move to double option price
in one week. ONE WEEK MOVE ONLY !
Numbers within ( ) are the amount of change for the week.
Numbers within ( ) may be designated with PxW, like P3W, prior 3
weeks
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;
Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"
Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.
***********
CALLS PLAYS
***********
Hardware
***********
CSCO - Cisco Systems Inc $137.44 (+4.69)
Cisco is a worldwide leader in networking for the Internet.
They provide networking solutions to businesses that allow
for seamless communication without regard to differences in
time, place, or type of computer equipment. Cisco directs
2/3rds of the network traffic out there and is also a major
maker of LAN switches. The strategic alliances they have
formed with such big names as Microsoft, Alcatel, and US West
further enhance their influence and presence in the networking
industry.
The red carpet is once again being rolled out for CSCO. This
time it's being added to OIN's call list for a split run. The
stock splits 2:1 in a little more than two weeks on March 22nd.
There's no question the BoD has enough shares. These days Cisco
has 5.4 bln shares authorized and only 3.42 mln outstanding.
Now even though volume has been drifting at moderate levels,
we're anticipating some pre-split excitement will give CSCO a
shot of adrenaline. As of Friday's close, Cisco is perched just
a hair under the 52-week high of $139 (set on February 23rd).
Dips near the converged 5-dma ($132.95) and 10-dma ($132.31) are
considered solid entries as these levels represent relatively
strong support. If you want to play it safer, then a move
through $139 is your target entry. Also look for stronger
volume levels to back the climb.
Cisco was recently ordered to change its name in Brazil.
Apparently Brazil's Sisco Sistemas e Computadores SA had
registered its name eight years before the San Jose company.
Cisco has until April 9th to comply with the ruling or face
$5,693 a day in penalties. Also on the global front, Cisco
along with the Intel Corp, made recommendations to foster the
growth of Internet usage and e-commerce in the Russian markets.
As of 1998 Internet-related services in the Russian markets was
worth about $160 mln.
***March contracts expire in 2 weeks***
BUY CALL MAR-130 CWY-CF OI=12192 at $ 9.75 SL=7.50
BUY CALL MAR-135*CWY-CG OI=16083 at $ 6.25 SL=4.50
BUY CALL MAR-140 CWY-CH OI=11092 at $ 3.38 SL=1.75
BUY CALL MAR-145 CWY-CI OI= 6978 at $ 1.69 SL=0.75
BUY CALL APR-135 CWY-DG OI= 5186 at $11.63 SL=9.25
BUY CALL APR-140 CWY-DH OI= 8036 at $ 8.63 SL=6.50
Picked on March 5th at $137.44 PE = 188
Change since picked +0.00 52 week high=$139.00
Analysts Ratings 23-15-0-0-0 52 week low =$ 47.00
Last earnings 12/99 est= 0.23 actual= 0.25
Next earnings 05-09 est= 0.26 versus= 0.19
Average daily volume = 23.8 mln
/charts/charts.asp?symbol=CSCO
********
BIO-TECH
********
MDT - Medtronic Inc. $51.38 (+3.94)
As the world's leading medical technology company, MDT makes
devices to help regulate medical problems from erratic
heartbeats to tremors and incontinence. The company conducts
business in more than 120 countries in the areas of cardiac
rhythm management, neurological and spinal, vascular, and
cardiac surgery. About half its sales come from defibrillators
and pacing products, including devices for slow, irregular, or
rapid heartbeats. Through its Arterial Vascular Engineering
subsidiary, MDT makes catheters, stents, and guidewires used
in angioplasties. MDT is also developing products for
minimally invasive cardiac surgery and sleep apnea.
Helping us stay healthy in spite of ourselves, MDT continues
to provide devices critical to keeping our hearts ticking. A
different angle than the Biotech firms who are working on anti-
cancer treatments, MDT goes right to the source of the problem
to control and mitigate cardiac and neurological abnormalities.
Breaking out of a year-long consolidation in late January,
shares of the company seem to have really found their legs in
the past few weeks. Helped along by strong earnings and a host
of positive analyst comments (see news below), shares of MDT
surged to a new all-time high of $51.50 on Friday. Although
volume was a bit lackluster (25% below the ADV), the intraday
volume picture is more encouraging. Each time prices moved up,
they were accompanied by a surge in volume, which tapered off as
MDT prepared for the next surge higher. Also encouraging is the
fact that the close was just a tiny fraction below the high of
the day. With a strong close above $50, this level should now
act as support, followed closely by $49 which is right between
the 5-dma and 10-dma. Now in uncharted territory, MDT looks
poised to continue higher. Feel free to jump on board if the
buyers continue to bid shares up on Monday, but a more
conservative approach would be to wait for a confirming bounce
at support.
MDT competitor Guidant (GDT) saw its shares hit a record high
this week on perceptions that the medical device maker will
report strong first-quarter sales. According to Goldman Sachs
analyst Lawrence Keusch, there is a strong sense that both GDT
and MDT will retain their competitive position in the
defibrillator market. This came on the heels of a host of
positive analyst comments in the last 2 weeks. On Tuesday,
CS First Boston began coverage of MDT with a Buy Rating. This
followed ABN Amro reiterating its Buy rating and raising its
price target from $50 to $60 on February 24th. The same day,
Gruntal raised its long-term price target from $50 to $62,
leaving its rating at Outperform. This all followed MDT's
strong earnings release on February 23rd, where the company
reported a 28% rise in earnings on an 18% revenue growth.
All four of its major business units reported double-digit
sales growth.
***March contracts expire in 2 weeks***
BUY CALL MAR-50 MDT-CJ OI=3536 at $2.69 SL=1.25
BUY CALL MAR-55 MDT-CK OI=1021 at $0.75 SL=0.00 High Risk!
BUY CALL APR-50 MDT-DJ OI= 207 at $4.38 SL=2.75
BUY CALL APR-55*MDT-DK OI= 237 at $1.94 SL=1.00
Picked on Mar 5th at $51.38 P/E = 93
Change since picked +0.00 52-week high=$51.50
Analysts Ratings 14-17-2-0-0 52-week low =$29.94
Last earnings 02/00 est= 0.23 actual= 0.23
Next earnings 05-24 est= 0.26 versus= 0.20
Average Daily Volume = 4.27 mln
/charts/charts.asp?symbol=MDT
****
DNA - Genetech Inc $234.50 (+59.50)
Genentech is one of the largest biotechnology companies in the
world. The company's research has led to twelve biotechnology-
based products on the market today. Genentech is the only
biotechnology company to have taken seven of its own products
from the laboratory to the marketplace, with several other
products stemming from Genentech research licensed to other
companies. Today Genentech markets seven biotechnology-based
products and has a product pipeline of more than a dozen
potential products. Activase, Protropin and Nutropin, Herceptin,
Pulmozyme, and Rituxin and two other drugs make up 66% of their
revenues.
Everyone knows Biotech is a hot sector, but the more
discriminating investors are favoring companies like Genetech,
CuraGen (CRGN), and Gene Logic (GLGC) who spend time and money
researching genomics, gene therapy and genetic decoding.
Momentum traders are also taking notice. Following a growth
stock conference at the end of February, which discussed
cutting-edge genetic treatments, many of these momentum players
jumped on DNA. The stock has since been a big mover. Last
Friday it closed above the previous resistance of $173.50 and
then proved it could hold higher levels on Monday. The momentum
was intact and building. Although momentum isn't the only
element in this play's favor. There's no doubt DNA is a split-
candidate. This Wall Street darling is currently trading at
more than 60% above historical split-levels ($130). DNA last
split 2:1 in November 1999. Notably the trigger event for the
split announcement was an earnings' release. Genentech is
scheduled to report its next earnings around April 12th, before
the bell. It'd be nice to see momentum carry DNA into an
earnings and potential split run. However the company only has
400 mln shares authorized and 257 mln outstanding so without a
vote to increase the number of shares there's only enough for a
3:2 stock split. But for now let's focus on the current trend.
We're faced with huge gains in a short time period, particularly
the $20 move on Friday, which marked the third consecutive 52-
week record. So we've got to be careful on the entry. At these
lofty levels, surely some will want to take some chips off the
table. The nearest support levels are at $210 and $215 while
$205 near the 5-dma ($207.49) is next in line. A big correction
could see DNA below $200. This is not likely to play into the
scenario, but nevertheless be aware of the risk. Overhead
resistance is at Friday's all-time high of $245. If DNA doesn't
slow down and consolidation you could look for intraday dips and
enter on the climb. But of course this is extremely risky and
only for the aggressive players who can afford to take a hit if
all goes to pot.
On Wednesday CSFB began coverage on DNA with a Strong Buy rating.
Earlier on February 8th, Goldman Sashes reiterated a Market
Outperform.
***March contracts expire in 2 weeks***
BUY CALL MAR-190 DWN-CR OI= 20 at $46.50 SL=36.25
BUY CALL MAR-195 DWN-CS OI=163 at $41.75 SL=32.50
BUY CALL APR-195 DWN-DS OI= 94 at $48.00 SL=37.50
BUY CALL APR-210 DWN-DB OI= 1 at $37.88 SL=29.50 low OI
BUY CALL APR-220*DWN-DD OI=113 at $32.00 SL=25.00
Picked on Feb 29th at $192.88 P/E = N/A
Change since picked +41.63 52-week high=$245.00
Analysts Ratings 3-5-5-0-0 52-week low =$ 58.25
Last earnings 12/99 est= 0.18 actual= 0.18
Next earnings 04-12 est= 0.25 versus= 0.22
Average Daily Volume = 830 K
/charts/charts.asp?symbol=DNA
*************
SEMICONDUCTOR
*************
QLGC - QLogic Corporation $155.44 (+10.19)(+34.25)(+10.97)
Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well. A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years. QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.
Building a better mousetrap has certainly worked for QLGC.
The company's leading-edge I/O products are in high demand and
the result has been gratifying. Add to this the continued
stream of positive comments from the company and the rapid rise
in the share price is no mystery. Succumbing to a bit of profit
-taking mid-week, QLGC looks to be on the move again. After
confirming the $140 support level twice on Thursday, buyers
returned in force Friday. Bidding shares back above the $150
resistance level on double the ADV gave QLGC new life and
allowed the issue to close just a smidge below the high of the
day. The next target will be the 52-week high at $159.50, which
should be an easy mark if the markets can stay healthy. With
NASDAQ 5K just a short hop away, the enthusiasm for this next
millennium mark could be just what QLGC needs to shoot to new
highs. Even with the profit-taking that took place last week,
QLGC didn't get anywhere near challenging its 10-dma (currently
$139.50). Look for the $150 level to provide support, followed
by $147 and target shoot for those intra-day entry points. Keep
an eye on volume as it will be key to QLGC's future direction -
if it drops off, beware of the profit-takers hiding in the
shadows.
In a decidedly positive interview on Friday, QLGC's CEO touted
the company's track record, citing strong financial performance,
the string of innovative products brought to market, and the
extensive OEM customer base, supported by a strong supplier
network. Also on Friday, QLGC announced support for
Quantum-ATL's Prism Storage Architecture initiative, which is
designed to provide Global 1000 corporations with a cost
effective means to realize the benefits of Storage Area
Networks (SANs).
***March contracts expire in 2 weeks***
BUY CALL MAR-150 QOV-CJ OI=175 at $14.00 SL=11.00
BUY CALL MAR-155 QOV-CK OI= 58 at $11.50 SL= 9.00
BUY CALL MAR-160*QOV-CL OI=174 at $ 9.13 SL= 7.00
BUY CALL APR-155 QOV-DK OI= 36 at $22.88 SL=15.50
BUY CALL APR-160 QOV-DL OI=485 at $20.63 SL=13.75
SELL PUT MAR-140 QOV-OH OI=326 at $4.13 SL=7.50
(See risks of selling puts in play legend)
Picked on Feb 22nd at $115.50 P/E = 221
Change since picked +39.94 52-week high=$159.50
Analysts Ratings 3-3-0-0-0 52-week low =$ 11.63
Last earnings 01/00 est= 0.18 actual= 0.20
Next earnings 04-19 est= 0.20 versus= 0.11
Average Daily Volume = 892 K
/charts/charts.asp?symbol=QLGC
****
ATML - Atmel Corporation $52.44 (+9.25)(+5.19)
Founded in 1984, Atmel Corporation is headquartered in San Jose,
California with manufacturing facilities in Colorado Springs,
Colorado; Nantes and Rousset, France and Heilbronn, Germany.
Atmel designs, manufactures and markets on a worldwide basis
advanced logic, mixed-signal, non-volatile memory, and RF
semiconductors. Atmel is also a leading provider of system
level integration semiconductor solutions using advanced CMOS,
BiCMOS, BiPolar and SiGe process technologies.
That sure was a short break before ATML started higher again.
It had cooled off on Thursday, closing at $47.88 due to profit-
taking. So come Friday all the bears had been shaken out,
giving the bulls their chance to continue ATML's climb. The
optimism that the Semiconductors will outperform the markets
is obviously continuing. We didn't see strong volume backing
the loss on Thursday either so we knew it may be time to rally
again on Friday. We would still like to see stronger volume
backing the move, but we can't complain about that intraday
trend. Hardly any weakness at all. ATML's resistance point
is $53.50. A bullish indictor will be if that level is broken
with volume. On the other hand, we are looking at the 5-dma
($49) as support if ATML heads downward. Place stops to protect
yourselves of anything lower than that. ATML has a lot in
their favor right now. They are in a hot sector, they have
analysts backing them, there is a bright outlook on future
earnings, and market conditions are good. All these factors
should allow them to keep their current direction.
***March contracts expire in 2 weeks***
BUY CALL MAR-45 AQT-CI OI=4108 at $8.50 SL=6.50
BUY CALL MAR-50 AQT-CJ OI= 485 at $4.88 SL=2.75
BUY CALL MAR-55 AQT-CK OI= 313 at $2.63 SL=1.25
BUY CALL APR-50*AQT-DJ OI= 732 at $8.38 SL=6.25
Picked on Feb 25th at $43.19 P/E = 108
Change since picked +9.25 52-week high=$53.50
Analysts Ratings 7-5-2-0-0 52-week low =$ 7.50
Last earnings 01/00 est= 0.13 actual= 0.16
Next earnings 04-24 est= 0.17 versus= N/A
Average Daily Volume = 5.41 mln
/charts/charts.asp?symbol=ATML
****
NSM - National Semiconductor $77.44 (+9.44)(+4.50)
National Semiconductor combines leading edge analog and digital
technologies to create highly integrated solutions for the
information age. They are developing the next generation
microchip, called a system-on-a-chip, which will combine a
microprocessor and logic and memory components in a single
unit. These products will be used in Internet appliances and
set-top boxes. No longer in the PC processor market, NSM has
switched its focus to integrated circuits that are used in
communications devices, networking equipment and automobiles.
The majority of the NSM's revenues come from outside the
U.S. with 60% of its sales in Asia and Europe. NSM does
business with some big names including Lucent, Compaq, Samsung
and Siemens.
How does that cliche go? Ask and you shall receive? Well, we
asked for a move through $74.50 accompanied by solid volume, and
that's exactly what we received. Shares of NSM moved through
$74.50 in the first five minutes of trading on pretty good
volume and moved higher from there. Ok, so maybe the tame
jobs report helped our earnings play get back on track, but
we will take whatever help we can get. By the end of the day
NSM had made another new high at $77.88 and closed near that
high, which suggests the momentum could continue next week.
NSM is scheduled to report earnings after the close on Thursday,
so we do have a bit of time for this play to continue. Many
times earnings runs don't really kick into high gear until the
last week or so before earnings are released, which may just be
the case with our play. NSM received some good press this week
after the Robertson Stephens Tech Conference. Twenty-one
leading semiconductor analysts were on hand to examine the
tech sector and NSM received high marks from Arun Veerappan,
Vice President and Senior Analyst with Robertson Stephens.
Companies whose focus in the industry is in the communications
area are growing in popularity, and that is exactly where NSM
sits. Veerappan believes communications is where the growth
is, which places NSM in an attractive position in the market
place. NSM has support at $75 and $73. Although NSM ended
the day with all signs pointing higher, a pullback to support
would also provide a good entry point for our earnings play.
Wednesday National Semiconductor introduced the world's
smallest USB node controller, the USBN9603. The USB node
controller solution is 68 percent smaller than the industry
TSSOP standard, making it the industry's smallest. Company
official said "the USBN9603 is ideal for mobile telephones
which couldn't use previous USB devices due to size and
supply voltage."
***March contracts expire in two weeks***
BUY CALL MAR-70 NSM-CN OI=3120 at $10.13 SL= 7.50
BUY CALL MAR-75 NSM-CO OI=3280 at $ 7.25 SL= 5.50
BUY CALL MAR-80 NSM-CP OI=1498 at $ 5.00 SL= 3.25
BUY CALL APR-70 NSM-DN OI= 405 at $14.00 SL=11.25
BUY CALL APR-75*NSM-DO OI= 534 at $11.88 SL= 9.50
SELL PUT MAR-70 NSM-ON OI= 942 at $ 2.25 SL= 3.75
(See risks of selling puts in play legend)
Picked on Feb 24th at $72.72 PE = N/A
Change since picked +4.72 52 week high=$77.88
Analysts Ratings 9-9-2-0-0 52 week low =$ 8.88
Last earnings 12/99 est= 0.26 actual= 0.37
Next earnings 03-09 est= 0.45 versus=-0.16
Average daily volume = 2.47 mln
/charts/charts.asp?symbol=NSM
********
Internet
********
NTAP - Network Appliance Inc. $199.94 (+7.00)
Their customer base is an impressive group of clients. Names
like Yahoo, AOL, Motorola, Siemens and the UK's #1 ISP Demon
Internet depend on them daily. Network Appliance uses its
Netcache software and NetApp suite of network storage servers,
or filers. These products are designed for and provide fast
reliable cost effective service for Internet service providers,
and corporate intranets. NTAP's hi-powered ONTAP operating
system allows simultaneous access by users from Windows, UNIX
and Web platforms. NTAP is located in Sunnyvale, Ca and
competes against EMC, Sun Microsystems, Cisco Systems and Novell.
An earnings run or split run, sometimes we don't know which are
more fun to play. NTAP provided traders with a very profitable
earnings run in late January and early February. Well, NTAP
reported solid earnings, meeting analysts estimates, coming in
well ahead of last year. They also announced a 2-for-1 split
of the company's stock set for March 23rd. The networker didn't
even suffer from an earnings sell-off, seen so frequently this
earnings season. It simply continued its trend to a new high
at $207.94. This past week investors took some money off the
table and NTAP spent most of the week consolidating. Friday,
with Fed fears easing a bit, NTAP got back on track and appears
to be setting up to provide us with a brand new opportunity.
With the split coming in a little over 2 weeks, we are looking
for NTAP to come through with an equally great split run. NTAP
jumped over $24 the day after earnings and the split was
announced. With each move higher NTAP has seen a fair amount
of profit taking, but has found buyers waiting in the wings on
just about every down move. What we are saying here is the
die-hard investors have held onto their shares, short-term
traders taking profits have only created buying opportunities
for others. After a brief dip to the $181 area early this week
NTAP has been gradually moving up, ending the week with a
strong gain with 2.1 million shares changing hands. NTAP has
support at $195, $188 and $182. If we see any profit taking in
the broad markets early next week we would look for a chance to
jump on board this new split run. A continued move higher would
also provide a good opportunity, as NTAP could out-do itself
once again.
The brokerage companies approve of the near term outlook for
NTAP as well, with four coming out after NTAP's earnings and
split announcement reiterating Buy ratings on the company.
NTAP's split will be the second on in the last three months,
with the last coming on December 21st.
***March contracts expire in two weeks***
BUY CALL MAR-190 ULM-CR OI=259 at $18.25 SL=14.25
BUY CALL MAR-200*ULM-CT OI=338 at $13.13 SL=10.25
BUY CALL APR-190 ULM-DR OI=234 at $30.13 SL=23.50
BUY CALL APR-200 ULM-DT OI=262 at $25.25 SL=19.75
BUY CALL APR-210 ULM-DB OI= 15 at $21.00 SL=16.25
SELL PUT MAR-180 ULM-OP OI=249 at $ 5.00 SL= 6.75
(See risks of selling puts in play legend)
Picked on Mar 05th at $199.94 PE = 571
Change since picked +0.00 52 week high=$207.94
Analysts Ratings 10-5-1-0-0 52 week low =$ 19.69
Last earnings 02/00 est= 0.11 actual= 0.11
Next earnings 05-16 est= 0.12 versus= 0.06
Average daily volume = 2.25 mln
/charts/charts.asp?symbol=NTAP
****
INKT - Inktomi Corp $160.97 (+15.85)(+22.56)
Inktomi develops the world's most scalable software for the
world's fastest-moving software environment: the Internet. The
company's core technology underpins products for the Internet
infrastructure that contribute to network performance,
scalability and efficiency. Inktomi technology paves the way for
emerging opportunities in online commerce, media and
communications by enabling the Internet to intelligently
accommodate more users and data traffic. Inktomi developed the
search engine that runs such popular portals as HotBot, NBC's
Snap, Yahoo!, and the Disney Internet Guide.
The powerful momentum that drove this infrastructure stock
upwards of 18.4% the previous week is now back in the game.
After a significant, but expected downdraft this week the
momentum resurfaced on Thursday. INKT rose off strong near-term
support levels of $138 and $140 and overcame two important
obstacles. First it shattered Friday's all-time high of $148.25
and then it cleared a psychological path as it moved above the
$150 mark to tag $151.56 intraday. Friday cinched the deal with
a $15.47, or 10.6% jump. It appears investors are still very
much interested in this faction of the Internet industry. Money
is again flowing into INKT. But keep your guard up for some
back-filling after the huge gain on Friday. For the dma
watchers, the 5-dma at $145.13 is a good gauge to warn of
any impending doom. On the other hand, a definitive bounce off
this mark following a correction could ultimately be a solid
entry. Pay attention to the market sentiment. The first level
of short-term support is at $150, yet $156 showed strength
during a last-minute dip on Friday. Your entry will undoubtedly
depend how INKT responds to the market over the next few days.
As a reminder, INKT is very HIGH-RISK and not for those with a
weak stomach.
Mid-week SG Cowen upped its price target on INKT to $200 from
$150 citing that the company "continues to see strong demand for
its traffic server". Currently the firm has a Strong Buy rating
for the stock. In other news, e-lingo, the leading Internet-
based translation platform, and INKT announced they will
integrate their resources and provide a comprehensive multi-
lingual search solution to Internet portals and destination
sites.
***March contracts expire in 2 weeks***
BUY CALL MAR-150 KYQ-CJ OI=109 at $17.38 SL=13.50
BUY CALL MAR-155 KYQ-CK OI=333 at $14.13 SL=11.25
BUY CALL APR-150*KYQ-DJ OI=882 at $25.50 SL=20.00
BUY CALL APR-155 KYQ-DK OI=176 at $22.00 SL=17.25
Picked on Feb 22nd at $132.00 P/E = N/A
Change since picked +28.97 52 week high=$163.25
Analysts Ratings 8-9-1-0-0 52 week low =$ 28.13
Last earnings 12/99 est=-0.04 actual=-0.02
Next earnings 04-17 est=-0.02 versus=-0.07
Average Daily Volume = 2.34 mln
/charts/charts.asp?symbol=INKT
****
INSP - InfoSpace $259.81 (+34.50)(+25.06)(+8.94)(P4W +75.31)
InfoSpace.com provides content and commerce solutions for Web
sites and Internet appliances. Their focus is on content such as
yellow pages, maps, classified ads, real-time stock quotes,
sports and other information. InfoSpace.com has 100+ online
customers including the likes of American Online and Microsoft.
Founder and CEO, Naveen Jain, has a 38% stake while Acorn
Ventures owns 12% of the company.
Many of you have enjoyed the exhilarating space ride INSP has
taken us on. Just this week, the opportunity for astronomical
profits were at hand. INSP moved from its consolidation respite
at $215 and $225 to rocket to the heights of $277 by Friday
morning. Volume also regained respectability trading above 2.1
mln during the latter part of the week. INSP is obviously
getting more perked up as its split date approaches. InfoSpace
stock is splitting 2:1 on April 7th (just announced the ex-date
on Friday). Be prepared to exit your positions before it goes
ex-div to avoid any chance of a post-split depression. If you're
looking for another play into this split run then it appears a
dip to $250 could provide the entry you desire. This mark has
held up well under the pressure of the past two trading sessions.
But again, I must remind you. There are many perils and risks
in playing the Internet stocks. They have wild intraday swings
and can also reverse a trend without notice. Never leave this
type of play unattended. If you still interested or have open
positions, watch $280 as a psychological point of resistance.
If this stock does take a dive, the first sign of its demise will
be a return to the 5-dma ($238.80) followed a slip to firmer
support at $230.
In the news this week, InfoSpace announced it made an investment
in Internet Broadcast Systems (IBS), a leader in the industry of
converging local television news and the Internet through its
national network of local Web channels. According to IBS, the
investment will help it expand its Web channels in the US and
Canadian markets. And a name change for the company is on the
horizon. InfoSpace.com is dropping the dot.com from its name to
better reflect its position as a global provider of
infrastructure services online and off.
***March contracts expire in 2 weeks***
BUY CALL MAR-250 FHY-CJ OI= 44 at $27.25 SL=21.25
BUY CALL MAR-260 FHY-CL OI= 60 at $22.63 SL=17.75
BUY CALL MAR-270 FHY-CW OI= 13 at $18.25 SL=14.25
BUY CALL APR-270 FHY-DW OI= 15 at $35.25 SL=27.50
BUY CALL APR-280*FHY-DX OI= 18 at $31.38 SL=24.50
Picked on Feb 10th at $191.50 P/E = N/A
Change since picked +68.31 52-week high=$277.00
Analysts Ratings 5-3-0-0-0 52-week low =$ 10.00
Last earnings 12/99 est= 0.00 actual= 0.09
Next earnings 05-01 est=-0.12 versus=-0.01
Average Daily Volume = 1.81 mln
/charts/charts.asp?symbol=INSP
****
CMGI - CMG Information Services $134.06 (+16.56)(+9.13)
CMGI invests in, develops, and integrates advanced Internet,
interactive, and database management technologies. The
company's venture capital arm is called @Ventures and boasts a
portfolio of over 30 Internet companies such as Lycos and Raging
Bull. One of the more prominent additions to its portfolio is a
83% acquisition of the search engine, Alta Vista. The majority
of CMGI's revenues (80%) is derived from fulfillment and mailing
list services.
CMGI took the spotlight this week! The stock made stellar gains
topping 15%, or $17.69 ahead of its scheduled earnings' date.
Unfortunately this earnings' play is almost over. CMGI is
confirmed to report on Thursday, March 9th, but it's UNKNOWN at
what time during the day they'll announce. Therefore it's very
important that you're out of any call positions before that
date. You certainly don't want to be caught in a post-earnings'
sell-off! If you got into the play two weeks ago when we first
alerted OIN readers of this play's great potential, then you're
pockets should be overflowing with greenbacks. Even if you were
more conservative and waited for the break above $120 you can
still say "they showed me the money"! Now let's take a look at
our current situation. There's 3 trading sessions left. CMGI
just plowed through $130 on Friday and managed a near-term
support level of $132 and $134 quite well. It shouldn't take
much to move through overhead resistance is at $135.38, Friday's
intraday high, but if it does get stuck then time is your enemy.
Only you can determine if this play still fits your risk
portfolio.
In the news this week, CMGI's iCast division is releasing an
application that combines multimedia content with instant
messaging features. CMGI is also partnering with Hicks, Muse,
Tate & Furst Inc and Pacific Century CyberWorks Ltd to form a
new venture capital alliance, @Ventures Global Partners. They
have agreed to invest up to $500 mln each to support emerging
Internet companies in Asia, Europe, and the Americas.
***March contracts expire in 2 weeks***
BUY CALL MAR-130 GCD-CF OI=6440 at $13.00 SL=10.50
BUY CALL MAR-135 GCD-CG OI=3269 at $11.25 SL= 9.00
BUY CALL MAR-140*GCD-CH OI=3678 at $ 9.00 SL= 6.75
BUY CALL APR-140 GCD-DH OI=2096 at $18.00 SL=14.00
BUY CALL APR-145 GCD-DI OI= 213 at $16.00 SL=12.50
BUY CALL ARP-150 GCD-DJ OI=1979 at $14.50 SL=11.25
Picked on Feb 24th at $119.06 P/E = 103
Change since picked +15.00 52-week high=$163.50
Analysts Ratings 4-7-0-0-0 52-week low =$ 26.94
Last earnings 12/99 est=-0.72 actual=-1.08
Next earnings 03-09 est=-1.32 versus= 0.07
Average Daily Volume = 6.75 mln
http://www.optioinvestor.com/charts.charts.asp?symbol=CMGI
****
CLRN - Clarent Corp. $138.00 (+39.00)
Clarent makes Internet-based telephony systems that transfer
voice, data and faxes. Their telephony systems permit the
simultaneous transmission of voice, fax and data over the
Internet and similar communications networks. The method
of technology uses network space more efficiently than
traditional circuit systems, because it takes up space only
during transmissions. Clarent has three distinct components
in their system, which is comprised of Clarent Gateway, Clarent
Command Center, and a third party relational data base. Their
revenues come primarily from telecommunications service
providers such as AT&T, although about half of their customers
are outside the U.S. Clarent's competition is found in Cisco
Systems and Lucent.
What a nice start to a brand new play. CLRN joined the broad
markets in a rally Friday, moving to another new high. The
Robertson Stephens Tech Conference was certainly good for a
number of stocks this week, as comments coming at the end of
the meeting concerning CLRN, were very favorable. Paul Johnson,
Managing director at Robertson Stephens, mentioned CLRN with
the likes of Brocade Communications, saying that while today
CLRN is primarily focused on international long distance, over
time they will be focused on domestic as well. Johnson went on
to comment that CLRN will be "the next generation voice player."
The telecom industry saw some renewed interest this past week
for a variety of reasons, and CLRN did its share to support
its brothers and sisters in the industry, with investors adding
39% to the price of its stock. Part of the recent interest in
CLRN could be a special stockholders meeting that was held the
middle of February. The company's board of directors asked for
approval to increase the number of authorized shares from 50 mln
to 200 mln, which can mean only one thing, a split is in the
works. Actually we don't know if they approved the board's
request, but we feel certain shareholders checked the box for
approval. Technically, a look at an intraday chart shows CLRN
forming an ascending triangle pattern. Typically this suggests
a move to higher prices in a market that is moving up. Support
for CLRN is seen at $135, $131 and back at $124. The charts are
indicating that the momentum should continue, however we would
check the mood of traders Monday, as a pullback could provide
a good entry point for a new play as well.
There was very little company specific news come out this week
on CLRN. Besides the Robertson Stevens Tech Conference, shares
of stocks in the sector moved higher on rumors and discussions
between DT, Qwest, and US West. Earlier this week gecco.net did
choose CLRN to be its IP telephony supplier for a network it
intends to build throughout Europe, the Middle East and Asia.
***March contracts expire in two weeks***
BUY CALL MAR-130*KGQ-CF OI= 0 at $16.88 SL=13.00 New Strike
BUY CALL MAR-135 KGQ-CG OI= 0 at $14.13 SL=11.00 New Strike
BUY CALL APR-125 KGQ-DE OI=50 at $31.38 SL=24.50
BUY CALL APR-130 KGQ-DF OI=70 at $29.00 SL=22.75
BUY CALL APR-135 KGQ-DG OI= 0 at $26.63 SL=20.75 New Strike
SELL PUT MAR-115 KGQ-OC OI= 1 at $ 4.88 SL= 6.50
(See risks of selling puts in play legend)
Picked on Mar 02nd at $128.00 P/E = N/A
Change since picked +10.00 52-week high=$139.06
Analysts Ratings 2-3-0-0-0 52-week low =$ 19.88
Last earnings 01/00 est-=0.10 actual=-0.05
Next earnings 04-20 est=-0.04 versus= N/A
Average Daily Volume = 571 K
/charts/charts.asp?symbol=CLRN
****
SEBL - Siebel Systems, Inc. $154.72 (+16.34)(+23.81)
Siebel Systems, Inc. is the world's leading provider of eBusiness
applications software. Siebel Systems provides an integrated
family of eBusiness application software enabling multi-channel
sales, marketing and customer service systems to be deployed over
the web, call centers, field, reseller channels, retail and
dealer networks. Siebel Systems' sales and service facilities
are deployed locally in more than 28 countries.
SEBL investors and traders alike were probably rejoicing in a
"Thank God It's Friday" breakout (a rarity this year), wherein
SEBL steadily rose over $18 for the day. The catalyst? A surge
of volume after lunch, moving SEBL over previous resistance of
$144. Once that figure was hit, technical traders jumped in too
for the breakout to a new high. It didn't hurt either that DLJ
issued a price target to $160 and initiating coverage with a Buy
rating earlier in the day. They cited SEBL's ability to leverage
its position as the dominant CRM (customer relations management)
solutions provider going forward. Following the breakout, range
trading in the late afternoon ensued between $147 and $150. A
final 15 minute volume surge and $4 price rise looks good for
Monday's market opening (just don't take a position in amateur
hour). If the rally doesn't fall apart from any Fed-speak on
Monday and the sentiment holds with traders who think that NASDAQ
5000 is going to happen, look for support at $150 (old
resistance) and again at $147 (late intraday support). Support
is really solid at $135. Despite the volume surges at certain
price points during the day, daily volume still remains below the
ADV. Accordingly, the move up isn't quite as convincing as we'd
like it to be. Thus, our target for shooting is probably better
relegated to a lower number between the 10-dma and 5-dma,
currently $134.50 and $140.36 respectively.
SEBL is also a split candidate at these levels although
shareholders will need to vote an increase in authorized shares
in order to effect anything greater than a 3:2 split. In the
news, B of A issued a Strong Buy rating and raised it's price
target on SEBL earlier in the week from $150 to $175, citing
strong near-term fundamentals.
***March contracts expire in 2 weeks***
BUY CALL MAR-150 SGW-CJ OI=421 at $11.75 SL= 9.25
BUY CALL MAR-155 SGW-CK OI= 37 at $ 9.00 SL= 6.75
BUY CALL MAR-160 SGW-CL OI=192 at $ 6.88 SL= 5.00
BUY CALL APR-155 SGW-DK OI= 0 at $16.50 SL=13.00 Wait for OI!
BUY CALL APR-160 SGW-DL OI=208 at $13.88 SL=10.75
Picked on Feb 22nd at $121.88 P/E = 253
Change since picked +32.84 52-week high=$155.00
Analysts Ratings 9-5-0-0-1 52-week low =$ 15.75
Last earnings 01/00 est= 0.15 actual= 0.19
Next earnings 04-25 est= 0.14 versus= 0.10
Average Daily Volume = 3.4 mln
/charts/charts.asp?symbol=SEBL
****
VERT - VerticalNet, Inc. $251.72 (+25.97)(+27.00)
VerticalNet owns and operates 55 industry-specific Web sites
designed as online business-to-business communities, known as
vertical trade communities. These vertical trade communities
provide users with comprehensive sources of information,
interaction and e-commerce. They are grouped into the following
industry sectors: ADVANCED TECHNOLOGIES, COMMUNICATIONS,
ENVIRONMENTAL, FOOD AND PACKAGING, FOODSERVICE AND HOSPITALITY,
HEALTHCARE/SCIENCE, MANUFACTURING AND METALS, PROCESS, PUBLIC
SECTOR, SERVICE, TEXTILES AND APPAREL. Additionally, VerticalNet
provides auctions, catalogs, bookstores, career services and
other e-commerce capabilities horizontally across its communities
with sites like Industry Deals.com, IT CareerHub.com, LabX.com,
Professional Store.com. VerticalNet's NECX Exchange provides an
exchange for the electronic components industry.
There's plenty of momentum to go around in the B2B sector and
VERT is getting its fair share. Much of the action came from
analyst's comments at the BBRS Conference last week, where it was
learned that VERT has created over 3000 store fronts across 55
industries, and continues to grow revenue at a 700% year over
year rate. A BBRS analyst noted that of the sell side B2B
companies, VERT holds the greatest opportunity. Despite the good
story, the play is really based on technical patterns. VERT had
consolidated around $200 by late February when we picked it up.
Since, it has jumped in $10 increments to consolidate then take
off again. $215 worked. So did $225. $235 was bypassed to test
$245. Late in Friday trading, VERT punched through that level on
a strong volume surge to close up over $17 at $251. However,
volume remains below the ADV, which makes the move over $245 less
reliable. Even so, the moves have been so huge that the 5-dma
($230.70) and the 10-dma ($220.78) are lagging way behind and
should be considered as rock bottom (but unlikely) entry points.
Any market weakness could lead to a nasty round of profit taking
in this sector, VERT included, that could easily test these
levels, but will likely result in an intraday bounce The tails
on the candlesticks indicate the sector's continued strength.
Considering how hot the sector has been, consider it a gift.
Even better, VERT splits 2:1 on March 31. We expect VERT to get
back to its old high of $289 by that time. If it isn't apparent
yet, this in one volatile issue. Stepping away from your screen
could cause a dip the same way washing your car can cause rain.
To that end, protect your gains with a trailing stop (and buy a
season pass at the car wash!).
There is no news other than the BBRS love-fest. However for you
long share traders, you can decrease the risk of trading only one
issue by purchasing a basket of 20 of these B2B stocks available
on the AMEX under the symbol BBH. VERT currently makes up about
7% of the index. Unfortunately, they are not yet optionable.
***March contracts expire in 2 weeks***
BUY CALL MAR-240 URE-CH OI=723 at $25.63 SL=20.00
BUY CALL MAR-250 URE-CJ OI=389 at $17.75 SL=13.75
BUY CALL MAR-260 URE-CL OI=487 at $13.25 SL=10.25
BUY CALL APR-250*URE-DJ OI=403 at $37.88 SL=29.50
BUY CALL APR-260 URE-DL OI= 93 at $34.50 SL=27.00
Picked on Feb 24th at $221.00 P/E = N/A
Change since picked +30.72 52-week high=$289.56
Analysts Ratings 4-6-3-0-0 52-week low =$ 20.00
Last earnings 02/00 est=-0.36 actual=-0.28
Next earnings 05-02 est=-0.45 versus=-0.19
Average Daily Volume = 1.4 mln
/charts/charts.asp?symbol=VERT
*********************************
CALLS - CONTINUED IN SECTION FOUR
*********************************
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*******************************
CALLS CONTINUED IN SECTION FOUR
*******************************
SEE DISCLAIMER IN SECTION ONE

The Option Investor Newsletter 3-5-2000
Sunday 4 of 5
*****************
CALLS - CONTINUED
*****************
SOFTWARE
********
ADIC - Advanced Digital Information $96.94 (+12.88)
A leading supplier of automated tape libraries, ADIC buys tape
drives from other manufacturers and outfits them with robotic
arms. The arm then selects a tape from a multi-tape unit,
ranging in size from desktop-size to large standalone units,
and adds or accesses data. With over 55,000 libraries installed
and a suite of innovative software solutions and Storage Area
Networking (SAN) products, ADIC is a leader in the rapidly
growing market to manage and protect computer network
information.
Like the Energizer Bunny, ADIC keeps going and going.
Continuing to march to higher-highs, ADIC finally took a
breather on Wednesday and Thursday to let investors park some
of their profits. As soon as the price hit support at $88,
it was off to the races again as investors bid the price up
above $97 on Friday. Closing very near the high, ADIC looks
poised to move higher, but the light volume does cause us some
concern. It may just be investors resting before a final run
into ADIC's 2-for-1 split, set for March 13th. The stock has
been strong for months now, and on February 16th, we were given
ample reason. Along with the split announcement, the company
reported 30% sales growth and 80% earnings growth year-over-year.
With the continued gains in the NASDAQ, a positive outlook for
the company, and a pending split, ADIC shares look ready to
charge through resistance at $100 and back into new highs.
Intraday support looks to be forming at $95, with strong support
between $88 and $90. ADIC trades in a nice, predictable manner,
as the direction of the open usually dictates the direction for
the remainder of the day. Look to enter new positions on a
renewed bounce off of support, but wait for the confirmation of
increasing volume. In its absence, any move to the upside will
likely be short-lived. If things really get jumping next week,
a breakthrough of the $100 resistance level can also be
considered for an entry trigger.
Just the latest to jump on the Linux bandwagon, ADIC announced
on Wednesday that it is bringing Linux servers into Storage
Area Network (SAN) data sharing applications by supporting the
fast-growing operating system with ADIC's CentraVision File-
sharing System (CVFS). In early February, ADIC announced that
it had added new Fibre Channel routers to its suite of Open SAN
Backup Solution products, making that package the first in the
industry to build in support for direct disk- to-tape,
serverless backup within SANs.
BUY CALL MAR- 95*QXG-CS OI= 43 at $11.00 SL= 8.75
BUY CALL MAR-100 QXG-CT OI= 25 at $ 9.00 SL= 6.75
BUY CALL MAR-105 QXG-CA OI=102 at $ 6.88 SL= 5.00
BUY CALL APR-100 QXG-DT OI= 3 at $19.00 SL=14.75 low OI
BUY CALL APR-105 QXG-DA OI= 0 at $17.13 SL=13.25 Wait for OI!
SELL PUT MAR-85 QXG-OQ OI=66 at $4.13 SL=5.75
(See risks of selling puts in play legend)
Picked on Feb 29th at $90.63 P/E = 104
Change since picked +6.31 52-week high=$101.00
Analysts Ratings 3-3-0-0-0 52-week low =$ 7.19
Last earnings 02/00 est= 0.23 actual= 0.27
Next earnings 05-17 est= 0.25 versus= 0.17
Average Daily Volume = 486 K
/charts/charts.asp?symbol=ADIC
****
LHSP - Lernout & Hauspie $118.25 (+10.03)(P3W +47.59)
On the cutting edge of interfacing man to his machines, LHSP
is the world's leading provider of speech and language
technology products and services. Included in the company's
broad array of products and services are the following;
speech recognition for more than 15 languages (another 20
are on the way), digital speech and music compression, language
translation, text-to-speech, Web-based translations, and
dictation of continuous speech. LHSP is collaborating with
Microsoft (who owns 7% of LHSP) on its own speech recognition
interface.
After waking up mid-week to bid shares of LHSP above the $100
support level, investors appear to have hit the mute button, as
volume dropped off again to less than half the ADV on Friday.
Relegated to a rather narrow range for the past 3 days, LHSP is
building support at $115 and resistance at $120. With the
positive comments coming from the company and anticipation of
the 2-for-1 split (approval and execution date pending), LHSP
will likely break out of this tight range sooner rather than
later. More encouraging than the profit-taking that took place
after LHSP last visited the $120 area, this looks to be
consolidation ahead of a renewed run at new highs. Each spurt
higher has come on increasing volume, so continue to use this
indicator as a confirmation of the stock's direction before
turning the sound back on. In the event of broad market
weakness, we may see a return to support near $108.50, which
could make for a very nice entry point. Target shoot intraday
dips to your risk tolerance level and then enjoy the ride. For
those more risk-averse, wait for a solid break through the $120
resistance level as LHSP investors make a run at the 52-week
high of $126.50.
In an upbeat interview on Thursday, LHSP CEO Gaston Bastiaens
spoke about the company's new voice sensitive technology and
real-time translation portals, and touted the company's growth
rate (more than 100% year-over-year for the past 3 years).
Presenting Thursday at the Robbie Stephens Tech 2000 Conference
provided yet another opportunity for the company to impress
investors with their strong product mix and growing list of
industry alliances, as evidenced by the strong jump in the
share price early Friday.
***March contracts expire in 2 weeks***
BUY CALL MAR-115 XQL-CC OI= 71 at $10.13 SL= 7.50
BUY CALL MAR-120 XQL-CD OI=334 at $ 7.88 SL= 6.00
BUY CALL MAR-125 XQL-CE OI= 19 at $ 5.25 SL= 3.50
BUY CALL APR-120 XQL-DD OI= 83 at $14.13 SL=11.25
BUY CALL APR-125 XXR-DE OI= 77 at $11.75 SL= 9.25
SELL PUT MAR-105 XQL-OA OI= 50 at $ 3.13 SL= 4.75
(See risks of selling puts in play legend)
Picked on Feb 12th at $82.00 P/E = 165
Change since picked +36.25 52-week high=$126.50
Analysts Ratings 1-1-1-0-0 52-week low =$ 25.75
Last earnings 02/00 est= 0.20 actual= 0.22
Next earnings 05-10 est= 0.16 versus= 0.12
Average Daily Volume = 930 K
/charts/charts.asp?symbol=LHSP
****
CHKP - Check Point Software $229.75 (+24.13)(+7.44)
Check Point Software has laid claim on being the best in the
business at securing the Internet. Their Secure Virtual Network
(SVN) architecture provides the infrastructure that enables
secure and reliable Internet communications. It's FireWall-1
verifies remote users, controls access and blocks viruses and
other unwanted Web content, while VPN-1 will allow companies
to set up virtual private networks for secure internal and
remote communications. CheckPoint markets its products through
manufacturers and resellers including Sun Microsystems. CHKP
is located in Rmat Gan, Israel, but nearly 60% of its sales
come from the U.S.
CHKP presented another commanding performance Friday. With an
improved sentiment in the markets, CHKP saw $9.25, or another
4.2% added to the price of its stock. Actually, at it's high
the gains were better than that, with CHKP topping out at $237
early in the session. Whether it's the recent cyber attacks or
the positive comments from the Robertson Stephens Technology
Conference this week, that have moved CHKP to the head of the
the class, CHKP has enjoyed a very nice run since its breakout
on Wednesday. One interesting note, shows the last upgrade or
reiteration CHKP received, came back in the middle of January.
It's not that the lack of comments from brokers that follow the
company, suggests anything wrong, as 14 out of the 16 that
follow CHKP have the company rated a Strong Buy or Buy at this
time. We would have expected more comments and reiterations for
a company that has performed so well since its 2-for-1 split in
late January. Since its split, CHKP has formed a very nice
channel in its move to new highs. Friday's high just happens to
be where the top of the channel extended as well. CHKP has had
recent pattern of making its move early in the day, and then
consolidating for the balance of the session. That was the case
Friday, as CHKP pulled back to the $225 area and saw buyer's step
in again late in the day. Intraday support for CHKP is seen at
$225, $220 and back at $212. Although a bounce off support may
have already began late Friday, use these points as a guide
should we see profit taking in CHKP and the Nasdaq early in the
week.
Most of the 100 or so Israeli tech and telecom stocks that trade
on the Nasdaq are outperforming their American software and
telecom counterparts. That's because Israel's engineers are
releasing advanced patented technology. This past Tuesday
Checkpoint and Internet Security Systems(ISSX) announced the
next generation of Check Point RealSecure which offers the most
comprehensive integration between intrusion detection and VPN/
firewall software.
***March contracts expire in two weeks***
BUY CALL MAR-210 YKE-CB OI=872 at $28.88 SL=22.50
BUY CALL MAR-220*YKE-CU OI=849 at $21.00 SL=16.38
BUY CALL APR-220 YKE-DU OI= 55 at $35.50 SL=27.75
BUY CALL APR-230 YKE-DV OI= 26 at $31.00 SL=24.25
SELL PUT MAR-180 YKE-OT OI=112 at $ 3.25 SL= 5.00
(See risks of selling puts in play legend)
Picked on Feb 27th at $205.63 P/E = 198
Change since picked +24.13 52-week high=$237.00
Analysts Ratings 8-6-2-0-0 52-week low =$ 11.50
Last earnings 01/00 est=0.32 actual=0.35
Next earnings 04-18 est=0.35 versus=0.25
Average Daily Volume = 821 K
/charts/charts.asp?symbol=CHKP
*******
Telecom
*******
AFCI - Advanced Fibre Communications $65.50 (+8.06)(+8.69)
Advanced Fibre Communications develops, manufactures, and
supports the Universal Modular Carrier 1000 (UMC), a multi-
feature digital local-loop carrier system. This product enables
telecommunications providers to deliver voice, video, and data
on whirling or wireless systems to smaller line-sized markets.
Global clients include Alltel, Sprint, France Telecom, and Cable
& Wireless Panama.
A fire began to kindle under AFCI following February's long
weekend. Looking back there was a recent baud meeting that may
have sparked investors' interest, but ultimately the momentum
was fueled by the slew of analysts' comments. Still if we put
all this aside what we essentially have is a pure momentum play
and nothing more. Sure it's true that news or company events
could effect AFCI, but it's the momentum traders that are
running this show. This adds to the risk factor because there's
no set date to mark on the calendar to estimate when the trend
will be likely over. For instance, on a split or earnings' run
you have a clue when the play will cool off or reverse. So keep
this in mind if you're new to trading momentum plays. AFCI is
at present a case in point. On Monday, the stock dipped down to
$56 and then went full-tilt setting a new 52-week record at
$71.37! Tuesday's volatility continued to provide profit
opportunity. But hold on the ride wasn't over. By Thursday
AFCI suffered enough of a downdraft to tweak our radar. Simply
put, it's sometimes difficult to determine if a momentum stock
is taking a breather or is running out of steam. Therefore
entry points can be a risky business. Friday's performance
showed promise with a $4.50 gain, but it'd be better to see AFCI
bounce off this point at the 5-dma ($65.39) and hold its gains.
***March contracts expire in 2 weeks***
BUY CALL MAR-60*AQF-CL OI=2347 at $ 8.25 SL=6.50
BUY CALL MAR-65 AQF-CM OI= 284 at $ 5.50 SL=3.75
BUY CALL MAR-70 AQF-CN OI= 455 at $ 3.63 SL=2.00
BUY CALL APR-65 AQF-DM OI= 133 at $12.38 SL=9.75
BUY CALL APR-70 AQF-DN OI= 181 at $10.00 SL=7.50
BUY CALL APR-75 AQF-DO OI= 144 at $ 8.50 SL=6.50
Picked on Feb 27th at $57.44 P/E = 22
Change since picked +8.06 52 week high=$71.38
Analysts Ratings 5-8-1-0-0 52 week low =$ 6.75
Last earnings 12/99 est= 0.09 actual= 0.10
Next earnings 04-20 est= 0.07 versus= 0.04
Average daily volume = 1.97 mln
/charts/charts.asp?symbol=AFCI
****
ERICY - LM Ericsson Telephone $104.81 (+7.19)(+8.94)(-1.50)
Ericsson is a world-leading supplier in the fast-growing and
dynamic telecommunications and data communications industry,
offering advanced communications solutions for mobile and
fixed networks, as well as consumer products. Ericsson is a
total solutions supplier for all customer segments: network
operators and service providers, enterprises and consumers.
Ericsson has more than 100,000 employees, representation in
140 countries and clearly the world's largest customer base
in the telecommunications field.
ERICY keeps cruising right along. ERICY gapped up nearly
three points at the open on Friday and set a new high at $105.
Possible points of new entry were a little hard to come by
because of the gap at the open, however, as you will see
mentioned in the paragraph below, there is still plenty of
time to get on board. Friday's volume was a little on the
light side and we will be looking for this to pick up again
next week. ERICY looks to have established some near term
support at $104, but the more solid support levels look to be
at $100 and at ERICY's 5-dma of $99.50. ERICY did close just
pennies shy of the new high, and could be well positioned
heading into this week to pick up right where it left off.
Do not forget, ERICY is a split run play. And we are not
talking your average 2:1 either. ERICY is set to split its
shares 4:1, something you do not often see for a stock trading
at this current level. The vote to approve the authorized
shares for the split, will be taking place at the end of this
month. The actual split will probably not occur until May,
leaving plenty of room for potential upside and entry points.
In other words, this could be just the beginning of a
potentially long and profitable run. On Friday, it was
announced that Ericsson and Saudi Telecommunications Company
have signed a Letter of Intent far a deal valued at
approximately $300 million. The deal involves a major
expansion and upgrade of Saudi Telecom's already existing GSM
Network. ERICY has also been selected to supply the WCDMA
infrastructure for Japan Telecom's new 3rd Generation network.
***March contracts expire in 2 weeks***
BUY CALL MAR- 95 RQC-CS OI=1062 at $11.25 SL=8.75
BUY CALL MAR-100 RQC-CT OI=4797 at $ 7.75 SL=5.75
BUY CALL MAR-105 RQC-CA OI=2406 at $ 4.63 SL=2.75
BUY CALL APR-100*RQC-DT OI=2105 at $11.75 SL=9.00
BUY CALL APR-105 RQC-DA OI= 180 at $ 9.00 SL=6.75
SELL PUT MAR- 95 RQC-OS OI= 426 at $ 1.00 SL=2.00
(See risks of selling puts in play legend)
Picked on Feb 15th at $86.38 P/E = 138
Change since picked +18.44 52-week high=$105.00
Analysts Ratings 8-11-4-0-0 52-week low =$ 20.50
Last earnings 01/00 est= 0.32 actual= 0.36
Next earnings 04-28 est= 0.17 versus= 0.04
Average Daily Volume = 5.41 mln
http://OptionInvestor.com/charts/charts.asp?symbol=ERICY
****
JDSU - JDS Uniphase $280.00 (+23.19)(+6.81)
Here's another company laying around on paradigm beach ready to
surf the next wave. JDS Uniphase Corporation is a fully
integrated optical electronics company that designs, develops,
manufactures and markets fiber optic telecommunications
components and modules and laser subsystems. The Company's
telecommunications products include semiconductor lasers, high-
speed external modulators, transmitters, fiber Bragg gratings and
optical modules for fiber optic networks in the
telecommunications and cable television industries. Based in the
Silicon Valley, California, they employ approximately 6260 people
worldwide. Customers include Lucent, Nortel, Cisco and Ciena.
American Express owns 10% of the common shares
It seems lately that split runs, rather than tax revenues, could
be used to pay off the national debt. They certainly have been
profitable. Probably one of the better ones we'll see could be
put on by JDSU as it approaches its 2:1 split date on March 10.
Split adjusted shares will begin trading on March 13. While
volume fell slightly below the ADV by week's end, we expect JDSU
to rocket forward, not just on the split run, but also following
what is anticipated to be new product introductions by JDSU at
the Optical Fiber Comm (OFC 2000) conference to be held this week
in Baltimore. There's a buzz surrounding this meeting like we
haven't heard in a long time. Just listen to Chris Crespi,
analyst at Banc of America Securities from a Reuter's article:
"We expect the stock price of the participating companies to
swing wildly by week's end." Technically though, JDSU wasn't all
that flashy by last week's end. Don't get us wrong; we'll take a
$7 gain on any Friday if it's handed to us. However, JDSU
hovered around $280 and generally failed to keep pace with the
NASDAQ all of Friday. That slightly sagging volume doesn't look
good either considering the OFC 2000 event and 2:1 split.
Support is around $270, though we don't think it will get to the
next level at $260 before the split. If you are real aggressive,
$280 may actually be support. There was some strange talk that
market makers were trying to keep JDSU under $280 on Friday. We
are not clear on that line of thinking, but Friday's chart
clearly shows the market's intent to keep this normally volatile
issue rangebound in the extreme.
The OFC 2000 event will be the news. Watch Monday morning for
a clue.
***March contracts expire in 2 weeks***
BUY CALL MAR-270 UCQ-CN OI= 7488 at $21.50 SL=16.75
BUY CALL MAR-280*UCQ-CP OI=11977 at $16.00 SL=12.50
BUY CALL MAR-290 YSU-CR OI= 1327 at $12.50 SL=10.00
BUY CALL APR-280 UCQ-DP OI= 847 at $35.00 SL=27.25
BUY CALL APR-290 YSU-DR OI= 245 at $30.63 SL=24.00
Picked on Feb 29th at $263.88 P/E = N/A
Change since picked +16.13 52-week high=$285.69
Analysts Ratings 20-11-1-0-0 52-week low =$ 21.38
Last earnings 01/00 est= 0.16 actual= 0.18
Next earnings 04-26 est= 0.20 versus= 0.09
Average Daily Volume = 7.7 mln
/charts/charts.asp?symbol=JDSU
****
CCBL - C-COR.net Corp $49.72 (+10.22)(+5.47)
As makers of fiber optic equipment and RF devices, customers
include cable television operators, telephone companies, and
installers of broadband communication networks for manufacturing
plants, offices, campuses, institutions, airports, and traffic
control systems. In support of its products, C-COR offers
technical customer services, including network engineering,
installation and maintenance assistance, and training. The
latest in manufacturing processes and techniques including
surface mount technology and an integrated MRP II system, enable
C-COR to produce high quality, value-added products for the
worldwide communications market. C-COR employs approximately 1200
people worldwide. That's the long way of saying they are in the
optical component and broadband access infrastructure business.
For those reading this play for the first time, let's recap from
Thursday's letter when we introduced it: Here's another low cost
optical play. Having more than doubled since tagging $20 on
January 31, CCBL has been on a jet ride. A word of caution
before we get started - the pilot has hiccups and has been
known to deploy thrust-reversers, causing unusual flight
characteristics. That said, this issue had no trouble at all
springing at the open from $45 (coincidentally, its 5-dma) then
finding support intraday at $48 before setting a new all-time
trading high at $50. Volume took a positive upward turn in the
process to exceed its ADV by 19%. Institutional buying is
increasing monthly, and with a float of just 16.7 mln shares,
retail buyers taking notice may stick to this issue like white
on a picket fence. Anyway, the trajectory is up. That's the
direction in which we expect the play to move as long as volume
continues over the ADV and the overall market cooperates.
Earnings are a ways off, currently anticipated on April 13 and
should have no effect on the current stock movement. Unless you
have an iron stomach, you may want to consider the April strikes
to capture what may turn into an earnings run by then.
There was no news on Friday to account for the move. However, we
note the following from Thursday's letter: The last upgrade by CE
Unterberg Towbin was to a Strong Buy and a $52 price target on
February 17. It's also worth noting that on February 22, CCBL
received a $33 mln order from Adelphia Communications - about 15%
of their trailing 12-month revenues of $228 mln.
***March contracts expire in 2 weeks***
BUY CALL MAR-45 LQE-CI OI=225 at $7.38 SL=5.50
BUY CALL MAR-50 LQE-CJ OI=115 at $4.38 SL=2.75
BUY CALL APR-45 LQE-DI OI=111 at $9.88 SL=7.25
BUY CALL APR-50*LQE-DJ OI=153 at $7.38 SL=5.50
Picked on Mar 02nd at $44.97 P/E = 57
Change since picked +4.75 52-week high=$50.00
Analysts Ratings 1-4-1-0-0 52-week low =$ 8.00
Last earnings 01/00 est= N/A actual= 0.13
Next earnings 04-13 est= 0.11 versus= N/A
Average Daily Volume = 595 K
/charts/charts.asp?symbol=CCBL
****
GLW - Corning Inc. $205.25 (+17.44)(-5.50)(+27.88)(+25.31)
Corning is a premier provider of optical fiber, cable, and
photonic products for the telecommunications industry; high-
performance glass for computers, television screens, and other
information display applications; advanced optical materials for
the semiconductor industry and the scientific community; ceramic
substrates for the automotive industry; specialized polymer
products for biotechnology applications; and other advanced
materials and technologies. Pots and pans (housewares) have been
a division of Borden since their sale in April 1998.
Aside from a nosedive at the open last Monday, GLW put on quite
a performance. No longer in the casserole dish business, GLW
is emerging as the major challenger to JDSU in the optical
component/subsystem heavyweight class. Look no further for proof
than last week's announcement that GLW would sell off their
metallic cable division to the U.K.'s Belden, Inc. - no more
"last century" technology for these guys. Technically, volume
remains above average (and did so all week), which tells us that
buyers are at the trough. It was enough buying activity to keep
GLW moving up every time it touched its 5-dma, currently at
$196.38. With the big technology move, GLW never got there, as
$200 support held firm on Friday. As long as Fed-Speak doesn't
get out of hand this week and throw cold water on the tech rally,
we look for the move to continue. Going forward, $200 support
should remain intact in a strong market, otherwise target the
shoot the 5-dma ($196.38) or the 10-dma ($193.18), depending on
your comfort level. Keep in mind that with such a big rise in a
short time, GLW may again stop to catch it's breath. However
with earnings on April 17, and the likelihood of a split
announcement on that date (shareholder meeting on April 27 to
authorize new shares from 500 mln to 1.2 bln), the trend is up.
Nonetheless, we think there will be buying opportunities along
the way. Target shoot to your level of risk tolerance, or wait
for a breakout over $208, a resistance level tested three times
in the last two days. Volume is the key; just be sure to confirm
that the market is in your favor before entering.
One item that could really light up GLW (so to speak) is their
19th Annual Media Briefing/Fiber and Photonics Business Update to
be held on Tuesday in New York. Secondarily, they could see
action from any buzz generated at the Optical Fiber Comm (OFC
2000) Conference this week, which will be held in Baltimore this
year.
***March contracts expire in 2 weeks***
BUY CALL MAR-190 GRJ-CR OI= 952 at $22.00 SL=17.25
BUY CALL MAR-200*GRJ-CT OI=2425 at $16.00 SL=12.50
BUY CALL MAR-210 GRJ-CB OI=1041 at $11.25 SL= 9.00
BUY CALL APR-200 GRJ-DT OI= 445 at $27.38 SL=21.25
BUY CALL APR-210 GRJ-DB OI= 22 at $22.75 SL=17.75
Picked on Feb 17th at $191.06 P/E =106
Change since picked +14.19 52-week high=$207.94
Analysts Ratings 7-6-0-0-0 52-week low =$ 47.69
Last earnings 01/00 est= 0.48 actual= 0.51
Next earnings 04-24 est= 0.47 versus= 0.36
Average Daily Volume = 2.48 mln
/charts/charts.asp?symbol=GLW
****
EMLX - Emulex Corp. $190.25 (+33.13)(+17.13)(P2W+32.00)
Emulex Corp is a leading developer and supplier of fibre channel
technology, an ANSI standard communications interface that
delivers unprecedented bandwidth, connectivity and reliability
networking applications. They design three types of connectivity
products: network access servers, print servers, and high-speed
fibre channel products. They sell their products worldwide to
original equipment manufacturers, and end users, through other
distribution channels including value-added resellers, systems
integrators and others. They have secured relationships with
some significant names including Compaq, EMC, Hitachi, IBM,
Sequent and Siemens. IBM accounts for about 11% of sales and
Sequent, which IBM bought last year accounts for nearly 12%
of the EMLX revenues.
It's nice to see what a little good news can do for the price of
a stock price. Actually there was no company specific news
out on EMLX, but the benign February jobs report helped ignite
a fire under the broader markets on Friday. As we've said EMLX
had held up very well the previous three Friday's with the
major indices in a tail spin. Yesterday, with the overall market
sentiment much improved, EMLX took off at the opening bell and
was trading +27 higher after the first ninety minutes of the
session. It really appeared as though traders who had been
nibbling on shares of the computer peripherals company off and
on for the last few weeks, suddenly received the green light to
jump in with both feet, as the volume picked up again to over
1.0 million shares. Friday's move certainly suggests there is
there is more upside potential for EMLX. It broke through the
top of the channel we've mentioned in earlier updates and could
experience a bit of profit-taking, which wouldn't be bad as it
would allow for a better entry into new or additional positions.
EMLX has support at $188 and again at $178, and a retracement
followed by a bounce, would be a very good area to consider a
new play. In the last month shareholders of EMLX have enjoyed
a gain of over $78. Some are calling for EMLX to be the next
"CSCO", while the chat rooms are still buzzing about a potential
split. We must reiterate, at this time there is no indication
of any split forthcoming. For now we will simply call EMLX a
great play. If you have a current position in EMLX, assess
your risk profile and set you stops accordingly.
As noted earlier, EMLX has been in the headlines very little
lately. Friday EMLX did show up in the Investor's Business
Daily along with others as a Nasdaq stock in the news. The
chart showed Emulex with +83% annual EPS growth and 0% debt.
We've mentioned that the institutions have been heavily
invested in EMLX for quite some time, and it seems like the
investing public has discovered this great company now as well.
***March contracts expire in two weeks***
BUY CALL MAR-175 UEL-CO OI=467 at $25.13 SL=19.50
BUY CALL MAR-180 UEL-CP OI= 5 at $21.50 SL=16.75 low OI
BUY CALL MAR-185 UEL-CQ OI= 1 at $18.63 SL=14.50 low OI
BUY CALL MAR-190 UEL-CR OI= 4 at $16.25 SL=12.63 low OI
BUY CALL APR-190*UEL-DR OI= 15 at $29.25 SL=22.75 low OI
SELL PUT MAR-170 UEL-ON OI= 83 at $ 5.63 SL= 7.50
(See risks of selling puts in play legend)
Picked on Feb 13th at $123.88 P/E = 346
Change since picked +66.38 52-week high=$195.69
Analysts Ratings 3-4-0-0-0 52-week low =$ 6.63
Last earnings 01/00 est=0.14 actual=0.23
Next earnings 04-25 est=0.17 versus=0.05
Average daily volume = 1.05 mln
/charts/charts.asp?symbol=EMLX
*************
Miscellaneous
*************
MER - Merrill Lynch $107.00 (+11.13)
Merrill Lynch, public since 1971, serves a wide array of
clients ranging from individuals and small businesses to the
world's largest corporations and governments. With over 60,000
employees in more than 40 countries, the company provides
investment, financing, advisory, insurance and related
services, through its subsidiaries and affiliates.
We are all probably familiar with the infamous Merrill Lynch
bull. This seems to be a very appropriate company icon, as
lately MER has done nothing but charge ahead. The financials
are said to be in the "interest rate sensitive" category and
as you may know, things have been a little rough lately for
this group. You would never know it by looking at Merrill
Lynch's chart. MER seems to be oblivious to the goings on of
the rather volatile market and its peers. Instead, MER has
posted an impressive $21.25 gain since the first of February
and looks to have the momentum behind it to keep right on going.
The volume has remained strong behind MER's move up, a nice
"bullish" indication that there are quite a few interested
MER buyers out there. MER has some solid support backing,
the first at it's 5-dma of $103 followed by support levels
at $102, $100 and $96 which MER tested and held throughout
last week. Friday, MER traded up to and closed near its new
52-week high that was set during Wednesday's session. The bull
may be well positioned to continue it's charge into next week.
Last Wednesday, brokerage shares benefited from an analyst
report released predicting increased profits for many of the
firms due to an increase in share trading and advising fees.
The Solomon Smith Barney analyst went on to up his 12 month
price target on MER from $110 to $140, citing the fact the
market activity is currently at record levels as one reason
for the upgrade. Watch for upcoming earnings reports toward
the end of this month from Morgan Stanley, Lehman Brothers and
Goldman Sachs, as these reports could potentially have an impact
on Merrill Lynch's share price.
***March contracts expire in 2 weeks***
BUY CALL MAR-100 MER-CT OI=3117 at $8.75 SL=6.50
BUY CALL MAR-105 MER-CA OI=1867 at $5.63 SL=3.75
BUY CALL MAR-110 MER-CB OI=1817 at $3.25 SL=1.50
BUY CALL APR-105*MER-DA OI= 861 at $9.38 SL=7.00
BUY CALL APR-110 MER-DB OI=2774 at $7.00 SL=5.25
SELL PUT MAR-100 MER-OT OI= 811 at $1.50 SL=3.00
(See risks of selling puts in play legend)
Picked on Mar 5th at $107.00 P/E = 106
Change since picked +0.00 52-week high=$107.63
Analysts Ratings 3-3-3-0-0 52-week low =$ 62.00
Last earnings 01/00 est= 1.36 actual= 1.80
Next earnings 04-25 est= 1.53 versus= 1.44
Average Daily Volume = 2.84 mln
http://OptionInvestor.com/charts/charts.asp?symbol=MER
**********************
LEAPS by Mark Phillips
**********************
Well, that didn't take long! From a high of 29.96 on Monday,
the VIX moved down sharply all week, ending up at 21.29. This
is getting close to the typical "market top" zone of our
favorite indicator, and we urge caution over the next week. We
want to buy LEAPS when the VIX is high and the stock in question
is providing an attractive entry point. We can purchase LEAPS
on a strong stock that has fallen on hard times, profiting when
the (hopefully) inevitable recovery comes. With the long fuse
on LEAPS, we don't have to worry about burning time-value on a
daily basis. For a better understanding of our philosophy and
approach, read the last 2 weeks' Leap of the Week plays. These
have been ideal entry points on great companies and patient
investors are being rewarded. Another play that finally
delivered is LU - after being beaten up (remember, entry point!),
the company finally gave investors something positive to chew on
and Bingo! - an $18 move in less than 2 weeks. This may be a
good week for LEAP players to sit on their hands - with the VIX
in the low 20's good, entry points may be hard to find. If you
are looking to take some profits from winning plays off the
table, this may be as good a chance as any.
Current Plays
SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN
EMC 11/07/99 JAN-2001 $ 80 ZOH-AP $15.38 $48.63 216.19%
JAN-2002 $ 90 WUE-AR $19.00 $52.63 177.00%
GPS 11/07/99 JAN-2001 $ 40 ZGS-AH $ 5.75 $12.75 121.74%
JAN-2002 $ 45 WGS-AI $ 7.88 $15.38 95.18%
IBM 11/07/99 JAN-2001 $100 ZIB-AT $13.63 $23.50 72.41%
JAN-2002 $110 WIB-AB $16.50 $28.50 72.73%
LU 11/14/99 JAN-2001 $ 80 ZEU-AP $12.88 $10.88 -15.53%
JAN-2002 $ 90 WEU-AR $16.13 $15.63 - 3.10%
CSCO 11/14/99 JAN-2001 $ 80 ZCY-AP $19.13 $64.75 238.47%
JAN-2002 $ 90 WIV-AR $22.00 $66.25 201.14%
GE 11/21/99 JAN-2001 $150 ZGR-AU $16.25 $18.25 12.31%
JAN-2002 $150 WGE-AU $25.50 $29.13 14.24%
NT 11/28/99 JAN-2001 $ 75 ZOO-AO $22.25 $56.75 155.06%
JAN-2002 $ 75 WNT-AO $30.25 $66.00 118.18%
VOD 12/05/99 JAN-2001 $ 50 ZAT-AJ $10.75 $18.25 69.77%
JAN-2002 $ 50 WHV-AJ $15.00 $23.88 59.20%
TXN 12/12/99 JAN-2001 $110 ZTN-AB $22.25 $87.75 294.38%
JAN-2002 $120 WGZ-AD $28.50 $91.88 222.39%
NXTL 12/19/99 JAN-2001 $ 90 ZFU-AR $23.50 $56.38 139.91%
JAN-2002 $100 WFU-AT $27.25 $61.13 124.33%
SUNW 12/19/99 JAN-2001 $ 80 ZJX-AP $17.63 $31.75 80.09%
JAN-2002 $ 90 WJX-AR $22.00 $36.00 63.64%
LU 01/09/00 JAN-2001 $ 50 ZEU-AJ $13.63 $27.38 100.88%
MOT 01/09/00 JAN-2001 $125 ZMA-AE $31.13 $65.75 111.21%
JAN-2002 $125 WMA-AE $41.50 $78.13 88.27%
CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $14.13 54.76%
JAN-2002 $ 40 WSY-AH $12.63 $18.50 46.48%
ERICY 01/30/00 JAN-2001 $ 65 ZYD-AM $19.75 $47.25 139.24%
JAN-2002 $ 65 WRY-AM $27.00 $55.00 103.70%
MSFT 01/30/00 JAN-2001 $100 ZMF-AT $17.63 $16.88 - 4.25%
JAN-2002 $110 WMF-AB $21.63 $21.38 - 1.16%
Q 02/13/00 JAN-2001 $ 50 ZWK-AJ $ 5.88 $19.13 225.34%
JAN-2002 $ 50 WWH-AJ $10.88 $24.38 124.08%
CS 02/13/00 JAN-2001 $ 30 ZCJ-AF $14.25 $24.13 69.33%
JAN-2002 $ 30 WLJ-AK $18.25 $28.13 54.14%
ICOS 02/20/00 JAN-2001 $ 40 ZIL-AH $10.25 $23.38 128.10%
JAN-2002 $ 45 WJI-AI $12.13 $26.50 118.47%
NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $24.50 32.43%
JAN-2002 $ 70 WUN-AN $24.25 $31.25 28.87%
To review the play description on any of our current plays,
go to the LEAPS section for the date the play was added.
Option Selection: Notice that many of our LEAP plays have moved
considerably since initially being picked. The listed options
may therefore be deep in the money and very expensive. When
entering a new position, look to buy LEAPS according to your
suitability level, but note that we typically initiate strikes
that are slightly out of the money from the stock's current
price.
Leap of the Week
IBM - International Business Machines $109.00
Did you take advantage of the buying opportunity this week?
Bouncing thrice at the $100 support level, IBM epitomizes the
quality we look for in playing LEAPS. Find a strong stock that
has fallen on hard times and wait for an attractive entry point.
Since there is plenty of time available, we can be patient, wait
for the bounce at support and then profit from the recovery in
the stock. Like our prior Leap of the Week picks (MSFT and GE),
IBM looks like it has put in a bottom and is ready to head
higher. On Thursday, Merrill Lynch analyst Steven Milunovich
expressed near term concerns, but expects the stock to be
stronger in the second half of the year. This sounds to us like
the perfect recipe for a successful LEAP play. With the VIX so
low, don't be in a hurry - let the play come to you. Patience
will likely be rewarded with another choice entry near $100
before the move begins in earnest.
BUY LEAP JAN-2001 $110.00 ZIB-AB at $18.50
BUY LEAP JAN-2002 $120.00 WIB-AD at $24.63
/charts.asp?symbol=IBM
New Plays
No new plays this week.
Drops
No drops this week either.
*****************
PUTS, PUTS, PUTS
*****************
Put plays can be very profitable but have a larger risk than call
plays. When a stock is falling the entire investment community
(except the shorts) is hoping it will reverse and start back up.
The company management is also doing everything they can to shore
up their stock price. The company issues press releases, brokers
talk it up, analysts try to put a positive spin on everything.
Then of course there is the death knell, the "buy recommendation"
simply because the price has dropped to some level that analysts
feel attractive again. Buyers who like the stock wait until it
appears a bottom has been reached and then jump on it in a feeding
frenzy. They may already have a large position and are averaging
down. Many factors can stop a free falling stock in mid drop.
****
DD - DuPont $50.75 (-0.75)
DuPont is a leader of global industrial companies that produce
and engineer products such as pharmaceuticals, chemicals,
high performance materials, and agriculturals. Some of their
products include Teflon, Dacron and Lycra. The company is
mainly focused in the life sciences area and its work includes
the finding of treatment for the H.I.V virus. It is the number
one chemical firm in the U.S. The company operates globally
through some 20 strategic business units.
Friday's mild job report, which helped to alleviate rising
interest rate fears, looks to have helped us with our put play
on DD. How so? Friday presented us with some great opportunity
for possible entry points. DD attempted to participate in
Friday's market rally but had it's run cut short by resistance
at the $52 (10-dma) level. By midday, DD found itself headed in
the all too familiar downward direction and by the close, had
taken back half of the day's gain. One day does not a trend
make, and we are certainly not convinced that DD is on its way
to a trend reversal. Another of the catalysts behind DD's move
on Friday, were the kind words spoken by Merrill Lynch analyst
John Roberts. He raised his intermediate-term rating on DD to
a Buy with a $58 12-month price target. He further commented
that "After 5 years of essentially flat EPS (earnings per share),
management appears committed to do whatever it takes to achieve
10 percent-plus EPS growth in 2000," Sure, it sounds good, but
by the end of Friday's session, it looked as though investors
just weren't ready to buy in, and thus the selling resumed. As
we mentioned on Thursday, investors seem to be concerned with
DD's upper management. In perusing through the message boards,
one is bound to encounter such terms as "dead wood" and "starched
shirts". It could be that until DD takes action to do a little
house cleaning on the upper executive level, the sellers will
continue to determine DD's direction. That is just fine by us.
As we mentioned, DD found resistance on Friday at it's 10-dma.
Watch for this level to continue to hold DD back. This level may
serve well for possible entry points as well. Also, watch for DD
to trade back through $50 backed by volume as an indication that
DD does intend to reclaim its downward trend.
***March contracts expire in 2 weeks***
BUY PUT MAR-55*DD-OK OI= 907 at $4.63 SL=2.75
BUY PUT MAR-50 DD-OJ OI=1223 at $1.44 SL=0.75
Average Daily Volume = 2.95 mln
/charts/charts.asp?symbol=DD
****
RNWK - RealNetworks $70.19 (-8.19)
RealNetworks is the pioneer and established market leader in
streaming media technology on the Internet. RealNetworks is
helping transform the Internet into the next mass medium by
making real-time, or streaming, Internet broadcasting possible
and profitable. In only four years, RealNetworks software systems
have become by far the most pervasive method of streaming media
on the Internet and intranets. Based in Seattle, RealNetworks
develops and markets software products and services designed to
enable users of personal computers and other digital devices to
send and receive real-time media using today's infrastructure.
When the rhythm is good, it is hard not to want to dance. RNWK
found itself tapping it's foot to the beat of the market on
Friday as the NASDAQ jetted to yet another record high. Was
it the beginning of a reversal for RNWK, or was it merely a
great opportunity for potential entry points? Being that RNWK
was unable to breakthrough its 10-dma on Friday, we are putting
our money on the latter. It was actually RNWK's 100-dma right
that managed to keep the lid on during Friday's session. RNWK's
100-dma is now at $71 and RNWK's 10 and 50-dma's are working
to converge right around $75.50, which could provide some
formidable resistance if needed. It is important for these
support levels to hold, as a breakthrough could indicate a
possible reversal. The $70 level could play a key role in
the future of RNWK's stay on our put play list. As we have
mentioned previously, though this level does look to have
potential to provide some support, we see the real support
coming into play near the $60 level. If RNWK can manage a
breakthrough the $70 level backed by strong volume we may be
cleared for a fall to this level. Did Friday's session remind
you of just why using your Stop Loss orders is so important?
***March contracts expire in 2 weeks***
BUY PUT MAR-70 RNO-ON OI= 819 at $5.50 SL=3.75
BUY PUT MAR-65*RBO-OM OI=1006 at $3.25 SL=1.50
Average Daily Volume = 1.97 mln
/charts/charts.asp?symbol=RNWK
****
PPG - PPG Industries $49.06 (+0.00)
PPG manufactures a variety of products for the manufacturing,
construction, automotive and chemical processing industries.
The company also helps do-it-yourself homeowners brighten up
their house with its Lucite brand of house paints. Paints,
stains, and other coatings account from almost half of the
company's sales, with the balance coming from the glass
products and chemicals divisions. PPG has over 75
manufacturing facilities in 16 countries, but North America
accounts for 70% of company sales.
Every dog has his day, and Friday was it for PPG. Supported
by the recovery on the DOW, PPG managed to move as high as
$50.63, before investors came to their senses and remembered
they don't like manufacturing stocks. Falling back from its
highs, PPG found support near $49 as the selling tapered off.
The big question is whether this is a bottom for the stock or
if we were just provided with an attractive entry point. With
very little in the way of news, PPG should continue to be
influenced by the direction of the broad non-tech market. PPG
looks to have solid resistance at $50.50, and if the bargain-
hunters can push through to close above this level, we will
likely have to concede defeat. Conversely, moving up to
resistance and rolling over could provide us with a very
attractive entry point. Below the $49 level, PPG will likely
find support near Thursday's new 52-week low of $46.63. Look
to enter new positions on either another southward bounce from
$50.50, or a penetration of today's support at $49. Keep an
eye on volume, as continued buying interest could signal that
life really has returned to this beaten down issue.
***March contracts expire in 2 weeks***
BUY PUT MAR-55 PPG-OK OI= 50 at $8.13 SL=6.25
BUY PUT MAR-50*PPG-OJ OI=109 at $2.44 SL=1.25
Average Daily Volume = 509 K
/charts/charts.asp?symbol=PPG
****
CTS - CTS Corporation $52.31 (-14.06)
CTS designs, manufactures and sells a broad line of electronic
components and custom assemblies for OEM customers in primarily
the automotive, computer equipment and communications equipment
markets worldwide. Roughly one third of CTS' sales come from
General Motors, Seagate Technology and Compaq.
Negative momentum is the name of this game. CTS had managed
to maintain a trading range between $60 and $80 from November
through the end of February. With no negative news backing the
drop, the $60 level finally gave way on the second day of March
and once it did the sellers picked up the pace and CTS closed
the session down $8.44. Since then, the negative momentum has
propelled CTS through its 200-dma, a level that has held since
December of 1998. CTS has consistently been tagging lower highs
and lower lows. CTS now looks cleared for a fall down to the
next level of support, which is in the neighborhood of $44. We
have also seen an increase in the volume level since CTS broke
$60, which indicates that there are a lot of investors who viewed
that level as a solid level of support and are now in a panic
mode to get out. Despite the market's stellar performance on
Friday, CTS continued to decline, giving us the go ahead to
initiate this play. CTS could encounter resistance at it's
200-dma, which is now at $55.50, should it make an attempt at
a move up. Look for the long time support level of $60 to now
provide a formidable level of resistance.
***March contracts expire in 2 weeks***
BUY PUT MAR-55*CTS-OK OI=400 at $5.00 SL=3.25
BUY PUT MAR-50 CTS-OJ OI=821 at $2.13 SL=1.00
Average Daily Volume = 2.95 mln
/charts/charts.asp?symbol=CTS
****
MRK - Merck & Co. $57.50 (-2.69)
Merck is a research-driven pharmaceutical company that discovers,
develops, manufactures and markets a broad range of human and
animal health products. Profiting from American's poor eating
habits, Merck is the US's #1 drug maker, producing drugs to
battle high cholesterol, hypertension, and heart failure.
Cholesterol drugs Zocor and Mevacor and top-selling hypertension
drugs, Vasotec and Prinivil make up more than one-third of the
company's sales. Among Merck's newer drugs are AIDS medication
Crixivan, anti-baldness pill Propecia, migraine treatment Maxalt
and arthritis pain medication Vioxx. Moving into the internet
world, MRK has formed an alliance with CVS to market its drugs
online.
Limping along with the rest of the NYSE, MRK has now not only
committed the cardinal sin of breaking its 52-week low, but
Friday provided the drug maker with its lowest close since June
of 1998. As if the poor market conditions weren't enough for
MRK, on Friday a company official shot the company in the foot,
announcing his belief that no drug maker will complete
development of an HIV vaccine for at least another decade. This
is not the kind of comment that attracts investors' enthusiasm,
much less their cash, and MRK paid the price by losing $1.75 on
the day. Technically this issue looks weak as the January rally
failed to take out the double-top from October/November of last
year. Volume on this latest decline has been strong with Friday
topping 10 million shares. With the degree to which the share
price has been depressed, MRK may find support right near
Friday's closing price; if not, investors will have to look for
$54 to provide assistance. Resistance on the upside comes in
the form of the old 52-week low near $61, backed up by the
10-dma (currently at $61.25). Ideally, we'd like to see a move
up near resistance to provide for a better entry, but if the
selling continues, look to jump on board as the beleaguered
issue drops below Friday's low of $57.06.
***March contracts expire in 2 weeks***
BUY PUT MAR-60*MRK-OL OI=3782 at $3.75 SL=2.25
BUY PUT MAR-55 MRK-OK OI= 654 at $1.13 SL=0.00
Average Daily Volume = 5.82 mln
/charts/charts.asp?symbol=MRK
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**************************************************************
*****************************
SEE DISCLAIMER IN SECTION ONE
*****************************

The Option Investor Newsletter 3-5-2000
Sunday 5 of 5
*************
COVERED CALLS
*************
Charting Basics: Pattern Recognition...
The knowledge of basic chart formations can significantly increase
the probability of a successful position. There are a number of
common technical patterns that can be used to identify favorable
entry points. Trend lines, support and resistance and volume are
fundamental to any technical assessment and there is one specific
formation that historically exhibits all of these components in a
clear and concise manner. This major reversal pattern was made
famous by Charles Dow and it has appeared in every major market
top or bottom in the last 50 years. The formation I am referring
to is a precursor to both market rallies and major corrections.
It is accurately described as a "Head-n-Shoulders" top or bottom.
In its simplest form, the Head-n-Shoulders Top reflects the final
rallies in a major uptrend, the first recovery of the following
downtrend, and the potential support or breakdown area (neckline)
between the upward movements. In a stage II climb, a stock will
generally advance along an established trend line in a series of
rallies that are interrupted by small corrections. When the move
begins to lose strength, a consolidation area is formed. If the
trend reverses to a significantly lower range before a recovery
occurs, a pattern of peaks and valleys will begin to evolve. The
initial segment of the formation (the left shoulder) is normally
associated with high trading volume. The follow-through to the
head of the pattern (generally a long-term high) will ordinarily
be driven by less volume. A variation of the double-top, often
near the peak of buying will occasionally develop on slow moving
blue-chip issues. This patterns typically exhibits heavy upside
volume which dissipates and then gradually increases as the stock
rounds-over into the downtrend. The eventual recovery rally (to
the right shoulder) is generally made on relatively low volume.
As with any pattern, there can be a number of small variations.
For example, there may be two or more left shoulders near the same
price range, or two or more right shoulders. In any case, the
most important component of the formation is the neckline. When
it is broken, the pattern is complete and a significant change in
character often follows. During this transition, trading volume
may not be significantly different but any substantial penetration
of the neckline warrants immediate action. There is usually one
attempt at recovery but the move almost always fails at the level
of the neckline. The following drop is often the most precipitous
of the entire formation and occasionally will eclipse the height
of the pattern (the top of the Head to the Neckline). As the new
character evolves, successive rallies commonly fail at lower highs
until the overall decline is far greater than the magnitude of the
initial formation.
The major differences between Head-and-Shoulders Tops and Bottoms
are the time periods necessary for the pattern to mature and the
trading volume associated with the development of the head (peak)
of the formation. In bearish reversals, top formations are often
completed in a few weeks. In contrast, significant support levels
(or bottoms) generally occur over longer periods and some patterns
may take months to evolve. In failing issues, the breakdown from
from a Head-and-Shoulders Top may not include a significant change
in volume, whereas the bullish breakout from a Head-and-Shoulders
Bottom must have volume confirmation. The historical traits of
well known patterns demonstrates the ability to profit from their
analysis and it's obvious you should never overlook the potential
of a clearly formed and definitely broken trend.
SUMMARY OF PREVIOUS PICKS
*****
NOTE: Using Margin doubles the listed Monthly Return!
Stock Price Last Call Strike Price Profit Monthly
Symbol Picked Price Month Sold Picked /Loss Return
BIDS 5.34 7.13 MAR 5.00 1.06 *$ 0.72 19.0%
ASPX 12.56 11.16 MAR 10.00 3.25 *$ 0.69 10.7%
HEB 11.94 15.75 MAR 10.00 2.69 *$ 0.75 9.1%
ANIC 6.94 7.38 MAR 5.00 2.31 *$ 0.37 9.0%
PTEK 8.94 9.38 MAR 7.50 2.13 *$ 0.69 8.8%
TSEM 21.00 27.25 MAR 17.50 4.63 *$ 1.13 7.8% New Symbol
FSII 17.81 20.00 MAR 15.00 4.25 *$ 1.44 7.7%
XICO 26.13 23.25 MAR 22.50 4.75 *$ 1.12 7.6%
IMNR 15.75 16.25 MAR 10.00 6.38 *$ 0.63 7.6%
GZTC 29.13 44.00 MAR 22.50 8.38 *$ 1.75 7.3%
AND 8.88 16.13 MAR 7.50 1.94 *$ 0.56 7.0%
SCTC 22.31 25.00 MAR 20.00 3.75 *$ 1.44 6.7%
TLXN 20.78 27.00 MAR 17.50 4.00 *$ 0.72 6.2%
SMSC 14.25 13.69 MAR 12.50 2.25 *$ 0.50 6.0%
UBET 6.25 5.19 MAR 5.00 1.63 *$ 0.38 6.0%
REMC 26.38 39.38 MAR 22.50 5.00 *$ 1.12 5.9%
PCMS 23.06 17.50 MAR 17.50 6.38 $ 0.82 5.5%
MCRE 15.50 19.75 MAR 12.50 3.88 *$ 0.88 5.5%
SIII 15.00 21.13 MAR 12.50 3.38 *$ 0.88 5.5%
EPIC 9.56 8.91 MAR 7.50 2.50 *$ 0.44 5.4%
WRLS 28.00 25.25 MAR 17.50 11.13 *$ 0.63 5.4%
ELIX 21.75 21.00 MAR 17.50 4.88 *$ 0.63 5.4%
MSGI 24.88 23.75 MAR 20.00 6.00 *$ 1.12 5.2%
RNBO 30.88 44.38 MAR 25.00 7.00 *$ 1.12 4.1%
ITIG 43.44 43.00 MAR 30.00 14.25 *$ 0.81 4.0%
GELX 17.81 21.56 MAR 15.00 3.75 *$ 0.94 3.6%
DRMD 12.75 9.31 MAR 10.00 3.38 $ -0.06 0.0%
*$ = Stock price is above the sold striking price.
Comments:
Some issues to watch that are testing (or may test) support
include Auspex Systems (ASPX), Xicor (XICO), and Youbet (UBET).
Duramed Pharma (DRMD) and Standard Microsytems (SMSC) have
weakened (earnings warning). Consider exiting early or rolling
down, depending on your long term outlook. P-Com (PCMS) is
suffering some post earnings blues. The 50 dma appears to be
providing support as P-Com nears a 50 percent retracement of
its latest rise in price.
NEW PICKS
*********
Sequenced by Company
Stock Last Call Strike Option Last Open Cost Return Return
Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged
AND 16.13 APR 12.50 AND DV 4.75 152 11.38 9.8% 9.8%
BIDS 7.13 APR 5.00 BDU DA 2.63 642 4.50 11.1% 11.1%
COB 14.13 APR 10.00 COB DB 5.00 168 9.13 9.5% 9.5%
EPTO 14.00 APR 10.00 QTP DB 4.75 901 9.25 8.1% 8.1%
ESCM 17.50 APR 15.00 QFC DC 4.38 568 13.12 14.3% 14.3%
MUEI 14.50 APR 12.50 MQU DV 2.81 1728 11.69 6.9% 6.9%
THDO 15.75 APR 12.50 TUD DV 4.25 209 11.50 8.7% 8.7%
Sequenced by Return Called & Return Not Called
Stock Last Call Strike Option Last Open Cost Return Return
Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged
ESCM 17.50 APR 15.00 QFC DC 4.38 568 13.12 14.3% 14.3%
BIDS 7.13 APR 5.00 BDU DA 2.63 642 4.50 11.1% 11.1%
AND 16.13 APR 12.50 AND DV 4.75 152 11.38 9.8% 9.8%
COB 14.13 APR 10.00 COB DB 5.00 168 9.13 9.5% 9.5%
THDO 15.75 APR 12.50 TUD DV 4.25 209 11.50 8.7% 8.7%
EPTO 14.00 APR 10.00 QTP DB 4.75 901 9.25 8.1% 8.1%
MUEI 14.50 APR 12.50 MQU DV 2.81 1728 11.69 6.9% 6.9%
Company Descriptions
OI - Open Interest
CB - Cost Basis or break-even point
RC - Return Called
RNC - Return Not Called (Stock unchanged)
AND - Andrea $16.13 *** Breakout! ***
Andrea designs, develops and manufactures audio technologies and
equipment for enhancing applications that require high performance
and high quality voice input. The Company's has several patented
and Patent-pending audio products that enhance a wide range of
audio products to eliminate background noise and ensure the optimum
performance of voice applications. Though revenues were lower for
the fourth quarter, Andrea is expanding its technology portfolio
and strategic alliances, which should boost future revenues.
Andrea has broken above a stage I base on heavy volume and has
reached a new 52 week high. As Andrea is somewhat overextended,
we favor a cost basis below the February high.
APR 12.50 AND DV Bid=4.75 OI=152 CB=11.38 RC=9.8% RNC=9.8%
Chart =
/charts/charts.asp?symbol=AND
****
BIDS - Bid.Com $7.13 *** Blast off! ***
Bid.Com is one of e-commerce's leading international online sales
and marketing organizations. The company offers a compelling and
cost-effective method of selling a wide array of goods and services
over electronic distribution channels. Bid.Com is strategically
positioned to leverage its business-to-consumer technological
leadership by offering the pre-eminent online auction platform for
co-ventures into B2B markets, developing and implementing custom
branded e-commerce solutions and for distribution through broadband
media. After reporting earnings, showing revenues increasing by
80 percent, Bid.Com has now announced plans to enter into a
strategic alliance with Ireland's Sunday Business Post. This
should allow BIDS to take advantage of the growing demand for
vertical online marketplaces in Europe. The news caused the
stock to jump above its recent trading range closing above the
December high and making a successful test of its 150 dma.
APR 5.00 BDU DA Bid=2.63 OI=642 CB=4.50 RC=11.1% RNC=11.1%
Chart =
/charts/charts.asp?symbol=BIDS
****
COB - Columbia Labs $14.13 *** What's Up? ***
Columbia Laboratories develops unique pharmaceutical products
that treat female specific diseases and conditions including
infertility, dysmenorrhea, endometriosis, hormonal deficiencies
and the prevention of sexually transmitted diseases. Columbia's
research in endocrinology has also led to the development of a
product to treat Andropause in men. Their products primarily
utilize its patented bioadhesive delivery technology, the
Bioadhesive Delivery System. The recent restructured senior
management team can't be the only reason for such strength in
the tape. Are investors anticipating blow-out earnings? Is
the rise due to sector strength? With earnings due this week,
we favor speculating closer to support until the reason for
the recent run-up is made known.
APR 10.00 COB DB Bid=5.00 OI=168 CB=9.13 RC=9.5% RNC=9.5%
Chart =
/charts/charts.asp?symbol=COB
****
EPTO - Epitope $14.00 *** Oral Drug Testing ***
Epitope develops, manufactures & markets oral specimen collection
devices and diagnostic products using its proprietary oral fluid
technologies. Epitope's lead product, the patented OraSure
collection device, is used in conjunction with screening and
confirmatory tests approved by the FDA to test for HIV-1 antibodies
and other conditions. Their technology is also being used to test
for drugs of abuse and other analytes. Last quarters earnings
were favorable showing increasing revenues and narrowing losses.
The recent introduction of the Intercept(TM) oral fluid drug test
helped spur the resumption of the stage II climb. We favor the
support provided by the January high and 30 dma.
APR 10.00 QTP DB Bid=4.75 OI=901 CB=9.25 RC=8.1% RNC=8.1%
Chart =
/charts/charts.asp?symbol=EPTO
****
ESCM - ESC Medical Systems $17.50 *** New FDA Approvals ***
ESC develops, manufactures and markets medical devices utilizing
lasers and proprietary intense pulsed light technology for
non-invasive treatment of varicose veins and other benign vascular
lesions, as well as other clinical applications. Their products
are used in a variety of areas, including cosmetic, medical, dental
and veterinary medicine. ESC announced in January that strong
fourth quarter sales exceeded the Company's expectations, which
helped ignite a strong rally. With recent FDA approval for ESC's
proprietary Intense Pulsed Light technology for hair removal on
all skin types, the stock shows no signs of technical weakness.
APR 15.00 QFC DC Bid=4.38 OI=568 CB=13.12 RC=14.3% RNC=14.3%
Chart =
/charts/charts.asp?symbol=ESCM
****
MUEI - Micron Electronics $14.50 *** Another Breakout ***
Micron Electronics and its subsidiaries are the third largest
provider of personal computers sold through the direct channel.
They develop, manufacture, market and support electronic products
for a broad range of computing and digital applications. They
custom builds a wide variety of notebook and desktop PC systems
and servers for its core customers in consumer, commercial and
government sectors. Just as many of the PC makers have, Micron
has been focusing its resources to become a Web-hosting outfit.
The effort appears to have paid off as Micron was chosen as the
"number one Web hosting company in the world" by Hottest Hosts.
We favor the breakout above Micron's stage I base on heavy
volume and the technical support at the sold strike.
APR 12.50 MQU DV Bid=2.81 OI=1728 CB=11.69 RC=6.9% RNC=6.9%
Chart =
/charts/charts.asp?symbol=MUEI
****
THDO - 3DO Company $15.75 *** Up and Away? ***
3DO is a leading developer and publisher of branded interactive
entertainment software. Its software products operate on several
multimedia platforms including personal computers, the Sony Play
Station and Nintendo N64 video game consoles, and the Internet.
Their software covers a broad spectrum of entertainment products,
including action, strategy, adventure/role playing, sports and
family games. Last quarter's earnings, powered by the release of
10 new games and European expansion, showed revenues up by 300
percent. Shortly afterward, ING Barings initiated coverage with
a strong buy. We agree, though we favor a cost basis closer to
support.
APR 12.50 TUD DV Bid=4.25 OI=209 CB=11.50 RC=8.7% RNC=8.7%
Chart =
/charts/charts.asp?symbol=THDO
*****************
NAKED PUT SECTION
*****************
Naked Put Percentage List
DISCLAIMER: Before entering any of the positions listed below,
you need to understand your risk tolerance. Selling puts can
be a High-Risk endeavor depending on the strike you choose to
sell. For a greater return, you run a higher risk of being
exercised. Therefore, please consider other strikes than the
ones listed below if you aren't comfortable with the one we
choose. We are gearing these towards higher-risk players. In
any case, you can always select a lower strike with a lower
return if it better meets your suitability.
Stock Stock Strike Option Option Margin Percent
Symbol Price Price Symbol Price At 25% Return
ELON 83.69 75 EUL-OO 6.88 20.92 33%
LYNX 94.69 80 ULX-OP 7.00 23.67 30%
CMTO 68.56 60 CQH-OL 3.88 17.14 23%
TXCC 101.06 100 TZQ-OT 9.50 25.27 38%
AMSC 63.00 60 QAY-OL 4.38 15.75 28%
RIMM 150.69 140 RUP-OH 8.00 37.67 21%
PUMA 172.00 160 YCQ-OL 13.63 43.00 32%
CORR 95.38 85 CHQ-OQ 6.75 23.85 28%
CIEN 170.00 165 UEE-OM 10.00 42.50 24%
ENMD 83.50 80 QMA-OP 6.25 20.88 30%
ENGA 165.94 160 GQE-OL 12.38 41.49 30%
ASDV 166.13 160 QFV-OL 16.13 41.53 39%
PMCS 201.00 200 SZI-OT 15.13 50.25 30%
ENZ 87.50 85 ENZ-OQ 5.88 21.88 27%
IMCL 154.44 140 QCI-OZ 4.63 38.61 12%
ADIC 96.94 100 QXG-OT 11.00 24.24 45%
FIBR 133.25 125 QBD-OE 10.38 33.31 31%
BVSN 260.25 250 BZV-OV 12.50 65.06 19%
CNXT 93.69 90 QXN-OR 5.75 23.42 25%
SDLI 442.00 440 QZL-OH 28.00 110.50 25%
CMGI 134.06 130 GCD-OF 8.13 33.52 24%
SONE 117.75 115 QFB-OC 7.25 29.44 25%
NSOL 355.69 340 JNV-OH 16.13 88.92 18%
MEDX 194.88 180 MJU-OP 21.13 48.72 43%
BRCD 315.25 300 UBZ-OT 13.50 78.81 17%
AMCC 269.38 260 AZV-OL 14.63 67.35 22%
EPNY 222.63 200 UEP-OT 10.13 55.66 18%
CRA 234.50 230 CKA-OU 18.00 58.63 31%
ALKS 186.00 180 ADE-OP 11.25 46.50 24%
PDLI 281.38 260 RPV-OV 17.38 70.35 25%
EPNY
AGGRESSIVE SELL PUT MAR-220 UEP-OD at $19.00 = 34%
MODERATE SELL PUT MAR-210 UEP-OB at $14.25 = 26%
CONSERVATIVE SELL PUT MAR-200 UEP-OT at $10.13 = 18%
SDLI
AGGRESSIVE SELL PUT MAR-240 QZL-OH at $28.00 = 25%
MODERATE SELL PUT MAR-230 QZL-OF at $22.13 = 20%
CONSERVATIVE SELL PUT MAR-220 QZL-OD at $17.88 = 16%
ENGA
AGGRESSIVE SELL PUT MAR-160 GQE-OL at $12.38 = 29%
MODERATE SELL PUT MAR-155 GQE-OK at $10.38 = 25%
CONSERVATIVE SELL PUT MAR-150 GQE-OJ at $ 8.38 = 20%
CIEN
AGGRESSIVE SELL PUT MAR-160 UEE-OL at $8.13 = 19%
MODERATE SELL PUT MAR-155 UEE-OK at $6.00 = 14%
CONSERVATIVE SELL PUT MAR-150 UEE-OJ at $4.63 = 11%
**********
Naked Put Writing: Buying stock at a discount...
In addition to viewing naked put writing as a strategy unto
itself, many investors and large portfolio managers who actually
want to acquire stock, will often write puts as well. We have
mentioned before that there are two basic strategies to use in a
neutral to bullish Market. The first technique involves writing
at-the-money puts to take advantage of a bullish movement in the
underlying stock for short-term profits. The second technique,
a less aggressive method, is to write an out-of-the-money put,
hoping that the sold position will expire worthless. Many traders
who enter these positions never intend to own the stock, as they
are time merchants. If the underlying stock drops in price,
they simply buy back the puts and close the position.
Yet the technique of writing naked puts is useful to many types
of investors who are oriented toward stock ownership. When a
stock's price rises quickly (as many have done recently), many
investors will open a limit buy order near an expected technical
pullback. If the stock never reaches the buy limit, the investor
misses out on the advance. Savvy investors will use a naked put
to acquire the same stock, using the option premium to reduce
their net cost in the desired stock. Of course, if the sold
option remains out-of-the-money at expiration, the put will not
be assigned and a naked put writer will also miss the advance.
However, he still gets to keeps the premium from the put as it
will expire worthless. The put writer takes a proactive role
in trying to acquire stock, and at the very least, receives some
compensation for his efforts. It is simply a method of trying
to accumulate a stock position at prices lower than currently
available on the market.
Next week we should continue with the series on Option Trading
Mechanics, as Ray should be back from "vacationing" in Moscow.
*** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.
SUMMARY OF PREVIOUS PICKS
Stock Price Last Put Strike Price Profit Monthly
Symbol Picked Price Month Sold Picked /Loss Return
ESPI 12.75 14.13 MAR 10.00 0.50 *$ 0.50 23.7%
SCTC 24.38 25.00 MAR 17.50 0.63 *$ 0.63 16.6%
WSTL 25.88 34.25 MAR 17.50 0.69 *$ 0.69 13.2%
ANET 12.69 13.25 MAR 10.00 0.25 *$ 0.25 13.0%
WPZ 15.31 14.00 MAR 10.00 0.38 *$ 0.38 12.4% New Symbol
ZONA 7.69 12.69 MAR 5.00 0.31 *$ 0.31 12.1%
WSTL 31.50 34.25 MAR 22.50 0.56 *$ 0.56 11.8%
XICO 26.13 23.25 MAR 20.00 0.44 *$ 0.44 11.2%
NTRX 31.13 25.88 MAR 20.00 0.69 *$ 0.69 11.2%
CLPA 44.81 47.31 MAR 20.00 0.75 *$ 0.75 11.2%
MSGI 23.75 23.75 MAR 17.50 0.38 *$ 0.38 10.7%
TSEM 20.13 27.25 MAR 15.00 0.56 *$ 0.56 10.6% New Symbol
CRUS 20.31 22.56 MAR 15.00 0.38 *$ 0.38 9.6%
PTEC 20.63 28.75 MAR 15.00 0.63 *$ 0.63 9.6%
RWAV 10.56 9.63 MAR 7.50 0.31 *$ 0.31 9.3%
PGEX 23.13 20.19 MAR 17.50 0.50 *$ 0.50 8.5%
IDTC 31.50 36.56 MAR 20.00 0.50 *$ 0.50 8.3%
SKYC 28.63 34.00 MAR 20.00 0.44 *$ 0.44 8.0%
PILT 33.94 38.19 MAR 22.50 0.63 *$ 0.63 7.4%
EXLN 23.00 22.13 MAR 15.00 0.31 *$ 0.31 7.1%
MSGI 24.88 23.75 MAR 17.50 0.44 *$ 0.44 7.1%
PTEC 23.06 28.75 MAR 17.50 0.38 *$ 0.38 6.6%
DRD 28.00 21.75 MAR 20.00 0.56 *$ 0.56 6.6%
AXTI 31.94 45.75 MAR 17.50 0.50 *$ 0.50 6.3%
RNBO 30.88 44.38 MAR 22.50 0.38 *$ 0.38 5.0%
*$ = Stock price is above the sold striking price.
Comments:
Rogue Wave (RWAV) appears to have successfully tested its 150 dma
and the January low. Duane Reade (DRD) is testing previous
lows (near the sold strike) and should be monitored closely. The
recent "strong buy" rating by Banc of America did little to stop
the drop after earnings. With Duane Reade oversold in the short
term, consider using any rally that quickly fails to exit the
position, unless you wish to own the issue.
NEW PICKS
Sequenced by Company
Stock Last Put Strike Option Last Open Cost ROI Opt
Symbol Price Month Price Symbol Bid Intr Basis Expired
BCRX 32.75 MAR 25.00 BIU OE 0.38 98 24.62 5.5%
ELIX 21.00 MAR 17.50 XQQ OW 0.50 0 17.00 9.3%
EXLN 22.13 MAR 17.50 ODU OW 0.56 116 16.94 11.2%
PLNR 15.88 MAR 12.50 PNQ OV 0.25 12 12.25 7.3%
SCTC 25.00 MAR 20.00 YQS OD 0.38 100 19.62 7.1%
TSEM 27.25 MAR 22.50 TWQ OX 0.38 50 22.12 5.8%
Sequenced by ROI
Stock Last Put Strike Option Last Open Cost ROI Opt
Symbol Price Month Price Symbol Bid Intr Basis Expired
EXLN 22.13 MAR 17.50 ODU OW 0.56 116 16.94 11.2%
ELIX 21.00 MAR 17.50 XQQ OW 0.50 0 17.00 9.3%
PLNR 15.88 MAR 12.50 PNQ OV 0.25 12 12.25 7.3%
SCTC 25.00 MAR 20.00 YQS OD 0.38 100 19.62 7.1%
TSEM 27.25 MAR 22.50 TWQ OX 0.38 50 22.12 5.8%
BCRX 32.75 MAR 25.00 BIU OE 0.38 98 24.62 5.5%
Company Descriptions
OI - Open Interest
CB - Cost Basis or break-even point
ROI - Return On Investment
BCRX - BioCryst $32.75 *** Breakout ***
BioCryst Pharmaceuticals is a biotechnology company focused on the
development of pharmaceuticals for the treatment of infectious,
inflammatory and cardiovascular diseases and disorders. BioCryst's
most advanced drug candidate, BCX-1812, is a neuraminidase inhibitor
designed to treat and prevent viral influenza. The recent weakness
in BioCryst was due to possible delays in starting Phase III
clinical trials for its flu treatment. In early February, BioCryst
announced that it will receive a $4 million milestone payment from
the R.W. Johnson Pharmaceutical Research Institute reference the
initiation of Phase III clinical trials oral influenza neuraminidase
inhibitor. The price rebounded nicely though remaining within its
six month trading range. On Friday, BioCryst jumped out of this
range and closed at a new all-time high. There was no news with
this huge move but you can't argue with the tape. We favor the
strong support above the sold strike on this speculative issue.
MAR 25.00 BIU OE Bid=0.38 OI=98 CB=24.62 ROI=5.5%
Chart =
/charts/charts.asp?symbol=BCRX
****
ELIX - Electric Lightwave $21.00 *** Fiber Optics ***
Electric Lightwave is a broadband integrated communications company
providing Internet, data, voice and dedicated access services to
communications-intensive businesses and the growing e-commerce
market. The company owns and operates high-speed fiber optic
networks that interconnect major markets in the West and operates
a leading national Internet and data network. Electric recently
settled its dispute with US West and completed two more segments
of its $131 million long haul route. Electric just reported
earnings this week, showing revenue and margin growth, which
should bode well for the future. A speculative candidate, as
some post earnings weakness may occur. We favor an entry point
below the 50 dma and the January high, with a cost basis near
the 150 dma.
MAR 17.50 XQQ OW Bid=0.50 OI=0 CB=17.00 ROI=9.3%
Chart =
/charts/charts.asp?symbol=ELIX
****
EXLN - eXcelon $22.13 *** B2B solutions ***
eXcelon is a provider of enterprise and embedded data management
solutions, including object-oriented and eXtensible Markup
Language (XML) data management solutions; a new universal data
standard from the World Wide Web Consortium. EXLN also offers
training and consulting services, as well as maintenance and
support services. The company's core data management product
offerings include ObjectStore, an enterprise object database
management system, eXcelon, an XML data server, and ObjectStore
PSE Pro, a suite of small footprint embeddable databases that can
be used either to prototype ObjectStore applications or as the
data management solution for embedded systems. A number of new
contracts and agreements have propelled this issue to blue sky
territory. The recent consolidation area near $17 provides
excellent support for this conservative position.
MAR 17.50 ODU OW Bid=0.56 OI=116 CB=16.94 ROI=11.2%
Chart =
/charts/charts.asp?symbol=EXLN
****
PLNR - Planar Systems $15.88 *** Entry Point ***
Planar Systems is a provider of high performance electronic
information displays, display sub-systems and complete display
systems. The Company markets products based on a variety
of display technologies including active matrix liquid crystal
displays(AMLCDs), passive matrix liquid crystal displays (PMLCDs),
and several others. These products are used in a wide variety of
applications in Planar's core medical, transportation and
industrial markets. Nothing like announcing the highest sales
ever to get your stock moving (enough to reach a new multi-year
high). Planar has recently announced several new contracts for
its display panels which suggest sales should increase. The
consolidation area near the sold strike offers a favorable
entry point in a hot issue.
MAR 12.50 PNQ OV Bid=0.25 OI=12 CB=12.25 ROI=7.3%
Chart =
/charts/charts.asp?symbol=PLNR
****
SCTC - Systems And Computer Tech. $25.00 *** Learning Curve ***
SCTC licenses and supports a suite of client/server, enterprise
software and provides a range of information technology services,
including outsourcing, systems implementation, systems integration
and maintenance and enhancements. The company offers a continuum
of information technology solutions from application software to
large-scale outsourcing contracts. SCT targets the 2,200 English
speaking institutions of higher education with enrollments greater
than 2,000 students for its software and services. SCTC recently
announced they will form a company with Datatel in the distance
education market. This new company would provide a web-based
platform for integrating electronic teaching/learning environments
with administrative enterprise systems. This is a unique and
undeveloped market that should provide enormous potential.
MAR 20.00 YQS OD Bid=0.38 OI=100 CB=19.62 ROI=7.1%
Chart =
/charts/charts.asp?symbol=SCTC
****
TSEM - Tower Semiconductor $27.25 *** Entry Point ***
Tower Semiconductor is an independent manufacturer of integrated
circuits on silicon wafers and a provider of related services.
As a foundry, Tower provides IC design, manufacturing and
turnkey services using advanced production capabilities and the
proprietary IC designs of its customers, and is specializing in
providing solutions for embedded non-volatile memory devices and
CMOS image sensors. ICs manufactured by Tower are adapted into
a wide range of products in diverse and rapidly growing markets,
including computer and office equipment, communication products
and consumer electronics. Strong fourth quarter earnings helped
propel Tower into a strong stage II climb, which is now nearing
blue sky territory. We favor a 2 week play with a cost basis
near the 30 dma.
MAR 22.50 TWQ OX Bid=0.38 OI=50 CB=22.12 ROI=5.8%
Chart =
/charts/charts.asp?symbol=TSEM
************************
SPREADS/STRADDLES/COMBOS
************************
Russian Shares Follow The West...
The dependence on U.S. markets is apparent in many of
the world's economies.
If you aren't a well-traveled person, a trip to the
capital of Russia (formerly the Soviet Union) would
appear to be an incredible opportunity. After
spending a few days with the people of this culture,
I can safely confirm that opinion. My temporary home
(the famous Ukraina Hotel) is located on the Southern
bank of the Moskva (Moscow) River in the heart of the
government district. The view to the East of this
monumental building offers an impressive panorama of
the central part of Moscow: the "White House" of
Russian Parliament, the International Trade Center and
the most popular tourist area in the city; Novy Arbat
Street. This location provides an excellent vantage
point to view the plight of Russian urban society.
The first and most important issue facing Russia's
current administration is the development of a sound
economic strategy. The nation has often been accused
of spending beyond its means and once again the
country faces serious monetary problems. Russia is
due to make over $700 million in foreign debt payments
this month but the current budget simply won't allow
it. Their last resort, the central bank's reserves is
the only way to fulfill these obligations. Despite the
problems in central government, the booming export
business and foreign interests in Russian corporations
continues to grow. While its difficult to understand
why anyone would want to invest in companies that
operate in a severely cash-strapped economy, the motive
is obvious. The world's wealthiest investors are
willing to go to any length to exploit a potentially
profitable situation.
The Russian Stock Market is a relatively new
achievement, born out of a necessity to finance the
flagging infrastructure. Oil equities make up two
thirds of the market and telecoms are Russia's
dominant technology stocks. The most popular gauge
of market performance is the Moscow Times Index, a
diverse group of 50 leading companies with a total
capitalization of almost $40 billion. The movement of
the dollar-dominated index is heavily dependent on
Western markets and this broad-based indicator mimics
the Dow's performance during periods lacking
significant regional news.
The system of exchange and trading is similar to
Western markets but the obstacles for outside
investors are numerous. The most important issue
concerns inconsistencies in the current securities
legislation. Russian law regards a security or stock
only as a "tsennaya bumaga", a valuable paper.
Unfortunately, securities trading generally occurs
entirely in a virtual world and with current
regulations, there is no allowance for electronic
trading. By defining a security as a document, Russian
legislators assumed a traditional, impractical approach.
In hindsight, lawmakers are now considering amendments
to recognize paperless markets.
There is another popular method of investing in Russian
industry. The leading corporations are traded on U.S.
financial markets as American Depository Receipts
(ADR's); financial instruments that act as proxies on
Wall Street for the shares of companies based abroad.
ADR's were created in 1927 in response to British Law
prohibiting local companies from registering their
shares in foreign markets. Most companies avoided the
letter of the law by using a proxy stock that traded
on Wall Street instead of real stock. American
Depository Receipts are used by countries around the
globe to participate in U.S. corporate growth but in
Russia they also have an unclear legal status. A large
number of Russian companies have sold ADR's on Wall
Street and although they are attractive to wealthy
foreign investors, under Russian law ADR's are not
absolutely recognized as an ownership stake in a
corporation. A number of hard-line politicians are
opposed to the system and were they to derail the ADR
program, it would affect the ownership structure of
almost every major Russian corporation. Of course any
trouble with the ADR market would eventually translate
into concerns for the entire concept; not a favorable
outcome for Wall Street.
It is interesting to note that the Bank of New York
is centrally involved in the current ADR controversy.
You may recall that BNY made the headlines years ago
as part of a billion dollar Russian money-laundering
scheme. Now it is again at the eye of the storm as
the Wall Street ADR connection for Russian investors.
BNY retains almost 75% of the global ADR market and
has been in a unique position to influence how a number
of these proxies are leveraged in Russian corporations.
Critics of the program have filed formal complaints
about the way ADR's were run through the BNY with
Russian Stock Market officials and the U.S. Securities
Exchange Commission. The statements suggest the BNY
has been conspiring with the management of Russian
companies that participate in the ADR program. Of
course all the alleged activities are subject to
investigation and interpretation (none of them have
been substantiated), but the BNY is vulnerable because
it has multi-million dollar assets in Russia that
could eventually be seized.
There is one unique development that has come from the
recent ADR controversy. A new project is underway to
create Russian Depository Receipts; proxies that would
let Russians buy a piece of Wall Street. The plan was
unveiled last year by a group that includes Deutsche Bank
and Templeton Investments and it is being examined by
representatives of the Central Bank and the Russian
Commission for Securities. The program is expected to
be in a place later this year and if successful, it maybe
extended to Russian ADR's.
Now let me get this straight - Russians investing in
Russian companies through proxy shares - that's
certainly an optimistic proposition, considering the
current state of economy.
Next week, I return home and we get back to the business
of making money...
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